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Should I sell with all the chaos and uncertainty?

What happens now? Last week was a bit of a shocker. The RBA downgrades growth, The US bombs Iraq, tensions build in the Ukraine….and how did the All Ords respond? More importantly,  are you responding rationally and not just reacting?

Above is a weekly chart of the Aussie market, yes it fell along with global indices, but the trend is still up in a relatively orderly fashion. Not so orderly if you now look at the daily chart below.

Certainly a lot choppier this chart. One may think how great it would be to buy at the lows and sell at the highs, true it would be, but it is very difficult to do so on a consistent basis. Traders that have tried for years come to the realization that weekly time frames give more probability, therefore a less stressful way to trade. Less stress creates a clearer mind, a clearer mind can create more profit.

Analysing daily charts will send you bonkers with uncertainty and indecision.

I have talked before about how to identify a trend. A trend is identified by a stock or index travelling from the left hand bottom corner of the chart towards the right hand top corner of the chart, like the chart below, which is again the weekly All Ords with a trend line on it.

A trend is also identified by a stock or an index making new highs (which it is)

A trend is also identified by a stock or an index NOT making new lows (the index has not made a new low for some time)

So we still have a trend IN THE PRESENT MOMENT. Until that situation changes the best thing to do is to stick to the plan, if you have one. If you do not you will easily fall victim to indecision and panic.

As tempting as it is to say things like, the trend is slowing, its hugging the trend line, it looks toppy, its rolling over, so I am selling everything and getting out! The fact remains you would be PREDICTING not responding. You would not be trading WHAT IS, you would be trading WHAT YOU THINK, that thinking most probably being driven by a large amount of FEAR.

There are more sensible things to do, like sell the weak stocks in your portfolio first and the hold the strong ones. This does a number of things.

It cashes you up and lightens your holdings in case the market falls more.

It gives you cash to re employ into stronger stocks if the market continues the up trend.

It gives you a feeling of control without panicking.

This is what is called “listening to the market”.

If the market and your portfolio could speak to you it would be saying something like this. “ you know, I don’t feel too good at the moment, there is just too much going on for me, I need a rest” And you say “fine, I understand, I will lighten your load and take a bit off you”

Too corny for you? Maybe. But the probability is this: Strong stocks tend to keep going up and weak ones don’t. Learning to identify what is strong and what is weak isn’t that difficult, you just need to learn, and it is something I teach my clients and course attendees.

So lets just wait and see what happens over the next few weeks before over reacting…………

 What else is happening.

 Recently the major Chinese index the Shangai Composite has been rallying with big volume. See the chart below.

This rally has spilled over into our large resource stocks like BHP and RIO, as can bee seen in the chart below.

This is very interesting as these two Aussie Gorillas have not really participated in our bull market…..yet. One would expect the XAO index (the All Ords) to continue up if they continue to rally with the Chinese, which has been the case in the past.

Courses

If you are interested in learning how to identify weak and strong stocks, it is something I will be covering in the upcoming courses, clink on the link below for more info.

http://www.easysharetradingsystems.com.au/Trading-Course/ 

Some Robin Williams quotes:

"Reality, what a concept!"

"We had gay burglars the other night, they broke in and rearranged the furniture."

"You're only given one little spark of madness, you mustn't lose it."

Have a great week, Peter.

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