REDZONE: A TRADER’S DELIGHT

Today, in yet another hostile day on Wall Street, the Dow Jones Industrial Average once again ran away from 12,200 – a.k.a. the RedZone.  Up to this point the Dow is hanging onto a paltry 3.6% gain for the year.  The 15-51 strength indicator betters that by 313%, gaining 11.4% so far this year.  Here’s how the action looks.

12-8-11chrt

Now, everyone knows that it’s impossible to “time the market” – the act of buying at the lowest and selling at the highest in any particular year.  But that’s not required to make money or be successful.  The cliché is: Buy Low and Sell High – that is, to make money.  And that’s easy to do in a volatile market like this one.

Every time the Dow approaches the RedZone is gets scared and can’t hold it.  Anything above the action zone midpoint (11,245) is over-valued territory.  That’s the time to sell or short stocks.  Reason being, there’s simply no reason to go long on overvalued stocks in a broken market with an economy on a downward trend.  That’s the reason the Dow sells off once it gets to the RedZone.  It makes perfect sense.

That kind of volatility is a trader’s delight.  It makes it easy to make money.

Stay tuned…