KCPO -  The Selling Should Continue - 5/21/2012

 

This market is showing us a real time example of the much misinterpreted reading of oversold market. Many market writers always  call it a oversold market whenever they see  the Stochastic goes below 20's.  And they always talk about a rebound will come soon and therefore it is "safe" to start buying. . In the case here, the Stochastic has been below 20's for the past 13 trading days but prices just keep going lower and lower. It has lost 356 points while staying "oversold". Why I did not call it an "oversold" market? This is because the ADX has already risen. This means this market is already in a trendy mode and in such market situation, we should NOT apply the oscillators class of indicators to trade the market. (Oscillators include RSI, W%R, MFI, Stochastic etc) Instead we should apply trend indicators like MACD ,DMI or moving averages.

Where to place your stop would be left to your preference and risk appetite. Placing it at prior day high plus or the lower band plus is completely up to you.



 

At the weekly chart, both the Stochastic and MACD are negative and continue to fall. The DMI has also just turned negative, thus offering another sell signal. Worst of all is that price has now closed below the lower band, which is another sell signal. This closing down below the lower band has aborted and totally demolished my earlier thinking that this market is in a new bull cycle. I am keeping eye on the currently flat ADX, as soon as it starts to rise, then more selling will appear.

Despite what Jim Rogers has been hyping, many of the commodities charts are conforming the end of their decade long bull cycle. You should start to pay attention to the US Dollars.