Let's talk about risk ...

... and let's talk about volatility!

There are many definitions of risk out there:

-1- for a trader I think it means where and when do I start losing money on my trade.

-2- strategically, I think it means when will the short and medium and long term trends change from bullish to bearish for the market(s) and its constituents.

-3- in the short term, it might be a synonim to volatility


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It think it is pretty clear that as far as the Point and Figure approach is concerned the long term trend is now bearish (the bearish resistance line is 13,650), the intermediary trend is also bearish with significant high and lows being lower, but the short term trend looks bullish with higher highs and lows. But will it last?

At this stage, I could argue either way. The strenght of support is +2 while that of resistance is +5. Who do you think controls the market right now? Who do you think will win? I made a contribution to the bull side this week and after enjoying a great return in the first few days of the week, I ended the week with 10% of my so-called great return Friday night. So like many others, I might be frustrated right now. Currently I can see the same set-ups I saw last Friday but at the end of this week-end, I have zero new ideas going into Monday morning trading...!

TSX Bullish %


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For me, this is a classic for estimating risk. For you info, I added the current level and high of all other North American markets at this time. There is still room for the market to correct toward the more "normal" level of 50% BUT notice that we are near the level of the previous low. A reversal of this statistic would confirm a new uptrend.

Number of stock above the 200 days moving average


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That's another statistic that I follow to measure risk. There has been a substantial deterioration to 44% BUT its not the first time it happened in this uptrend. We are now near the previous bottom as well.

On a stock by stock basis, the technicals are very depressing. These need to be improved, and there are two ways to achieve this objective: The creation of a basing pattern at the market and stock level and/or TIME. Should we get a positive reversal confirmed by the risk indicator of YOUR choice, one should begin trading the survivors, that is to say those stocks that did not succomb to the bearish correction. There are not that many in my database. AER, BAM.A, BCE, CNR, ENB, ESI, FM, GIB.A, PPL RCI.B, T and TRP.

I should also mention the Real Estate ETFs. Further down the road, getting more agressive could be a good tactic once the dust is cleared.

Pierre Brodeur