Opening Position
June 2006
Summer is here, and we are once again faced with the inevitable: high gasoline prices. And with that comes predictable jitters among traders, because whether you like it or not, the rise in crude oil prices does affect the equity markets. Does this increase mean that the uptrend that started in October 2005 in the equity markets has come to an end? If what happened in 2004 when oil prices rose is any indication of where equities will go, then yes, we can expect a reversal in trend. But then the question becomes, "Are the underlying fundamentals similar to those of 2004?" Probably not, which means that, as you've often heard, "This time, it may be different." So what are those underlying fundamentals? Gold prices continue to rise, the Federal Reserve keeps increasing interest rates, the US dollar is weakening, and then, of course, there are those geopolitical issues. All or any of these factors could dictate the direction of the equity markets.
IN Jay Kaeppel's article "Playing The Yield Curve," starting on page 32, you'll get an idea of how economic fundamentals such as interest rates have an effect on your trading. It's true; the shape of the yield curve can give you an idea of where markets are headed. And when you have an idea of that, you'll have a better grasp on how to position your trades.
But the yield curve will only give you a general idea. You'll still have to use your technical tools to time your trades. Rick Martinelli's article, "Harnessing The (Mis)behavior Of Markets," starting on page 20, discusses the fortune indicator and how you can use it to take advantage of short- and long-term trends. After all, you can only make profitable trades when you're trading a trend.
Trends are
a visual tool, and if you are somewhat familiar with technical analysis,
you'll know that there are several ways to identify a trend. If you apply
Elliott waves to your trading, Mircea Dologa's article, "Trading The Trend
In Wave 3," starting on page 56, will highlight various charting tools
you can apply when you're in that all-powerful third wave. When do you
know that third wave is ending? This article may have the answer.
Jayanthi Gopalakrishnan,
Editor
Originally published in the June 2006 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved.
© Copyright 2006, Technical Analysis, Inc.
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