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Sideways markets

Jack Chan
posted Mar 28, 2007

Despite this week's FOMC induced rally, nothing has changed in the big picture.

The three sectors of tech, gold, and energy which we cover, have been in a corrective phase and therefore, have been and still are stuck within a trading range for the past few months.

The chips have been stuck inside a 7% trading range. Barely budged this week.

And the cube is even more challenging, a 5% trading range. Had a nice pop on Wednesday after the neutral stance the Feds have switched to, but still short of the upper resistance.

GDX, the gold stocks ETF is a little more generous, with a 13% trading range. Also a nice pop after the Fed's meeting, now at the 60% retracement of the recent sell off, and at the middle of the trading range, kind of a no man's land.

OIH, the energy ETF is the most generous with a 16% trading range. This week's vertical ascent has pushed OIH to the top of the trading range. A continuous move up here will be considered a breakout, while a sell off may drop it back to the lower trading range.

A sideways market is challenging for most traders. The sharp rallies stir up a lot of fear. Fear of missing out. The equally sharp sell offs which follow also create a lot of fear. Fear of losing. As a result, most traders are caught up with this emotional roller coaster, and get whipsawed. A lot of money can be lost as the trading range continues.

Conservative traders should be patient and sit out these sideways conditions and preserve your capital until a major breakout is confirmed and a new uptrend begins. Aggressive traders can take on some small trading positions when we have set ups and when risk is manageable, and exercise discipline. But a sideways market is not all bad, option sellers love these conditions as 90% of all options expire worthless. Please consult an option specialist if you intend to be an option seller, and as always, manage your risks.

End of report

Mar 23, 2007
Jack Chan
email: jack@simplyprofits.org
website: www.simplyprofits.org

321gold Ltd