NorAm Capital Management

     

  • Like a Force of Gravity

    The dominant trend of a market can take over prices like a hidden force of gravity. Yesterday I mentioned that the stock market was at an important juncture. The decline of last week was large enough to bring some potential that we were approaching a ledge in prices that could cause a larger correction in the bull market that we have enjoyed for the past several months. It was nearing the make or break time in the market.

    It apparently was “make” time, as the bullish trend pulled prices higher in all the indexes. This was a perfect demonstration that the dominant trend in any market should always be respected. The “trend is your friend” is not just a tired old expression. It is backed by statistics when examining price behavior.

    The only problem with the market is the age of the trend in daily prices. Prices normally begin to have deeper corrections after 3-3 1/2 months of consistent rallies. The decline in early July is an example. We are nearing a period in the cycle of prices where another larger correction against trend is increasing in likelyhood.

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