Shanghai Index

China’s stock market advance into 2010 came to a halt since news that China’s authority is curbing lending for some banks. The measures taken may not be bad in the long run as it will prevent asset bubbles from getting out of hand. Taken in the broader context, it will create an environment that will allow equities an opportunity to move up in a more sustainable mode. However theoretical idea is not the one that brings in the money, only price action does. And the market has signaled that it has other ideas.

Technically, the Shanghai index has moved into “Warning” phase. It broke the longer term uptrend line and closed below the historical support level of 3000 on Friday. If the index rebounds from this level, it will most likely move into a sideway trading range before the market decides on its next move.

Dow In Warning Phase

Global stock market has been adversely affected by policy makers in China and US recently. China decision to go ahead with plans to curb lending to prevent economy from overheating and the proposal in US to stop banks from doing proprietary trading caused global market to stage a sharp retreat.

Dow industrial average has entered “Warning” phase with the index closing below its 200 day moving average. Since moving to “Bullish” phase, the index closed below its 200 day moving average only on 2 occasions.

The manner in which the index pierced through this support line suggests that we will be seeing further weakness. For investors who are thinking of raising their bets, I suggest that they take to the sidelines to wait for clearer signs from Mr Market before putting their money into the market.

Remember to trade with the trend and make it your best friend in 2010. Happy trading!

Forex Trends

Forex Trends

Trends formed in different markets. For example stock market, commodity market, forex market etc. Trading with the trend is a proven method to trade any market, but it is particularly effective in trading forex market. Why?

Consider stocks in equity market. If a company is doing badly and its stock is trending downwards, the company can take measures to improve the situation. For example, the company can be restructured, CEO can be replaced etc. This can cause a rapid change to the company’s fundamental outlook which will sooner or later be reflected in its stock price. This process can happen in a fairly short period of time.

When we trade forex market we are trading the economies of entire nation. When a country’s economy is strong or weak, it usually takes a longer time for economy to recover.

Hence, forex tends to stay in a trend longer than other markets.