Topping Out Is A Process

Posted by admin
on October 25th, 2010

Market bottoms are events. They happen in a day or two. Tops, on the other hand, take a while to play out.

Check out the recent tops and bottoms I have highlighted.

Anecdotally I would say that market tops take about three times as long to to play out as bottoms. Bottoms are emotional and irrational events. Tops are a different kind of emotional and irrational. Actually, the degree of irrationality depends on your perspective. If you’re a bullish in a topping pattern it just feels like consolidation for the next leg up. If you’re bearish during a topping pattern then the whole world can feel positively insane. Each new reach for fresh marginal highs feels like a preposterous fraud. If you’re bearish during a bottoming pattern each push lower feels like fresh validation on your thesis, but if you’re bullish during a bottoming pattern there is a tug-o-war between fear of the unknowns and wonderment at the ridiculous valuations and unstable minds behind the selling pressure.

Here is a much longer-term chart:

As for right now, the fact is that we’re in day 40 of this uptrend. Day 40 is pretty late in the game. My analysis points to resistance at 1190 up to 1202 so my portfolio is tilted slightly short and defensive. If we do get a correction it should last for 9-15 days. This fact is based on a proprietary study that my trading partner and I developed, called the Time Fractal Efficiency Algorithm. I may present the details of the study in the future.

My strategy is primarily market neutral and I always make sure that I have a pretty wide margin of error, because quite frankly, I need it.