Wednesday, March 14, 2012

Technical Analysis by Walter Murphy

Click Here To Play The Video
There was a point in time when I mistakenly believed market reversals from the peak were caused by selling.  Although it may seem counter-intuitive, such events are actually caused by buyer exhaustion.  It is what Walter Murphy describes in this video as "everyone being in the pool".  Once the maximum number of buyers is reached, there is insufficient new money to keep stocks at lofty levels.  As the chart in the video shows, we are pretty close to such a point in time.

Murphy gives three reasons he thinks markets are overbought.  First, the uptrend is now in its six month.  Second, momentum indicators are "starting to show signs of deterioration."  Third, sentiment is "excessively optimistic."  He says the trend is up, but is also unsustainable.  Longer term he is still bullish, especially for oil and gold to go higher.

That does not mean the markets can't go higher from here.  It does mean the risk of going lower is greater than going much higher in the shorter term.

What are your expectations for the next few months?

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