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July 21, 2012 / redman59

Trying to Think Like I Managed Millions

In being an active trader it is sometimes hard to focus on the long term. But also a trader I like to think “what would a money manager do”. The kind of person that just can’t buy and sell on the same day but acquires positions over time more than a couple days to a couple weeks. I have no experience managing millions of dollars so I don’t know all that is involved but I do know it takes time. So when looking at a long term chart I have to ask myself, what would I do if I were managing a chunk of money. For this I look at the weekly chart of the SPX.

Looking at this chart we are -7.35% off the 1422.38 high with a closing price at 1317.82. So really this seems like a typical correction negating the past, present, & future news. But if you’re trading this news driven market and not the charts, good luck.

What I see is that once we lost that 1350 level we fell into the range of the Feb-Aug 2011 range. It would not surprise me to test the bottom of this range and further expect some choppy action with a big range as seen in 2011. Some downside target areas I like are 1270, which would represent -10.7% decline. Then after that 1225 (-13.9% off the high), which we broke above in Dec 2010 and looks to be a decent support level. Also take note that the bear market -20% level is near 1338 which again looks like a decent buy support opportunity.

I call these levels as if I were managing a lot of money and were looking to start accumulating positions on a further drop. I would not go all in at first but would start allocating some money to the market. This represents a bigger picture view and there is definitely much news for the bearish case. I just try to filter out news and look at the big picture through charts and I see that it really isn’t that bad as it sounds. I end this post with a couple stats from thefinancialphilospher website in regards to market corrections:

1) Average Frequency of Market Corrections: 5% corrections occur 3 times per year, 10% corrections once per year, and 20% declines occur once every 3.5 years.

2) Big corrections (>12%) are normally associated with recessions or markets that are overvalued.

 

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