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Tuesday, July 25, 2006

Trader's Balancing Act

This market is definitely going to kill all trend followers. Just imagine shorting breakdowns and buying breakouts! Don't be surprised if at the end of the day, the numbers don't add up. But don't you worry. Just continue to remember the universal break up excuse of all men (should be used once in their lifetime), "It's not you, it's me" and you will survive. There is nothing wrong with you, if ever you are losing, it is the market stupid!

The market is in a consolidation, thanks to the Fed chairman taking this plane down as smooth as he wants it to be. His balancing act will definitely result to such consolidation. In the meantime, the market is discounting a "pause" in raising rates. Expect a rally until the Fed really does it.

Here are several points to remember when the market becomes oversold and overly negative(and traders want to buy):

(1) The momentum of earnings growth is still there.
(2) Companies are buying back their shares at a rapid rate.
(3) Coporates are drowning in cash
(4) Tax rates on dividends are slashed; companies giving dividends have increased.

Be smart enough to buy companies you know that have earnings. Stay with the strong ones folks!

On the other hand, when the market gets overbought or too bullish(and traders want to short):

(1) Think of the deficit.
(2) The US will most likely slowdown next year.
(3) Think of inflation; how much do you spend at the pump.
(4) Every major central bank is raising interest rates.

As the Fed is doing its juggling act, it is of most importance that we continously remain flexible.

Watch your step!

Bryan

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