"Men often become what they believe themselves to be. If I believe I cannot do something, it makes me incapable of doing it. But when I believe I can, then I acquire the ability to do it even if I didn't have it in the beginning" - Mahatma Gandhi

Thursday, September 22, 2011

Patterns and recognition

Far be it from the human race to see and register a pattern for future reference. We are generally inept at preventing ourselves from making the same mistakes over and over. I say this after a recent (within the last 9 months) on-and-off conversation I have had with advisors regarding the money markets.

This is a box of random shapes is it not? Children understand this. Heck, even adults understand this. So, why do we teach children to play and understand these shapes - recognition - if it does not have value later in life?

I woke up this morning to see the TSX Composite Index hit a new 52-week low within the fist 2 hours of trading. I lay there thinking to myself, 'I knew it'. Reality is that nobody really KNOWS, but those that forecast market outlooks can give a general idea of what may happen. Back in January when the TSX was hovering around and over 14,000 points, I had mentioned that I thought it was due for a correction. That idea was knocked down and I was told that the Canadian equity market was only going to get stronger through the year. WRONG. In June, that forecast by the same person had changed dramatically.

For me, this short-lived downturn in markets is a great thing as it provides A LOT of opportunity to get in on some good companies at low prices. I am not an advisor, far from it in fact, but I am following my gut as it has steered me in a good direction so far. Looking at a lot of charts this morning there is a consistent pullback in stock prices until the last day or two. Just by drawing basic lines on a chart I can see that there are new lower lows, and new lower highs, which technical indicator teaching would suggest a selling point. However, a dramatic break through that extrapolated line is what is going on with most stocks. What I see is trigger-happy people are selling and all the stop-losses that investors place to protect themselves are hitting, propelling stocks downward. I think there is at least a dollar or more correction on the upside to be had in the short term for many TSX stocks that will account for those stop-losses.

Markets lately are so volatile that it is hard to get a good grip on what is happening. I am looking at both short term and long term trading, and both have different strategies. While long term is more related to the fundamentals of cash flow and dividend payments, with modest growth, short term trading - for me - is based on daily ranges and volume. In the short term, I don't care about the fundamentals. What matters more is market sentiment.

Like I said, this blog is going to be random now! Time to get hyped up of caffeine and do some organising.

**Note that none of what I am writing about is advice or even remotely based on anything other than my own opinion. Please do not take any of this for word and go spend your life savings playing on the stock market without soliciting advice from a real advisor**

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