Ghost story

The wedge patter continues

It is hard watching and waiting. Hard sitting on my hands. It is like a scene in a ghost story. I'm in an old house, in the dark. Floor boards creak and I must keep my nerve.

Monday was Martin Luther King Day so the US market was closed. Then, yesterday, Wall street opened sharply higher. (Floor board creaks). Is this the beginning of an upward break out? Will I be caught in another strong rally with no equity positions to my name? Then, later in the day, the market subsides and I can breathe a sigh of relief.

Don't get me wrong. I am not wishing the market down. It is just that I have made a judgement that the most likely outcome is that there will be a fall. I base this on the pattern made by price movements. A rising wedge has emerged over the past four to five months (see chart) and we are approaching the apex.

I have put my money where my mouth is and sold my shares. This pattern predicts an eventual fall in the market with reasonable, but not absolute, certainty. All the time that wedge continues to build, odds are that I will be right. I am not throwing away opportunity by holding shares in what is a gently rising market. I would be much happier holding shares and making money but if my judgement is right that would be a foolish strategy, for I would lose money when the fall eventually comes. It is likely to be sudden leaving me no time to withdraw

If I am right and the price moves to the bottom edge of the wedge and then breaks down out of the pattern, that will be my signal to buy shorts and make money on the way down. I repeat this is not what I want. I know how to make far more money when the market is rising than when it is falling. But I have no control, only the ability to make judgements, the courage to act on them and the humility to admit I was mistaken when the market proves me wrong. Like most people I prefer not to be wrong hence my sigh of relief when the American market gave up its early rise and closed comfortably inside the wedge.