- Money Morning Australia

On the Crest of a Wave

Written on 19 October 2011 by Murray Dawes

On the Crest of a Wave

If you’re interested in finance and investing – and let’s face it, you wouldn’t read Money Morning if you weren’t – I’m sure you’ve heard the stock market described as being like a lot of things. A casino, baseball, a rollercoaster ride, a ticking time bomb…

But one of my favourite ways to think about the market is to compare it to the ocean.

Imagine every drop of water in the ocean is an individual buyer or seller of stocks. They make up the ‘market’ – the full body of water – the ocean. One minute they’re calm and the water is still. When they panic, it gets choppy as hell. Everything about the ocean, from the colour and temperature to the volatility, depends on the actions and feelings of those individual drops of water.

When they rush to buy a certain stock, they’re like a powerful force pushing a wave (or the stock price) up and up and up – into the type of wave it seems like you could ride all the way into shore. And when they sell, imagine a crashing wave that quickly rolls back into the ocean and doesn’t have the momentum behind it to build back up to the heights it reached before.

This is one way I like to picture the forces of the market at work. The push and pull of the price action.

Picture yourself, laying out in the middle of the ocean on your surfboard, watching for a sign of a wave that’s building or about to fall. When conditions are fine, your job as a trader is to drop in to catch these waves and ride them as long and hard as you can… and make big gains without putting your neck on the line.

Low volatility is the key. And that’s something I’d encourage you to keep in mind, whether you’re a trader or an investor.

Don’t get in the water when there’s a storm blowing up. Lightning overhead. Or when there are sharks in the water. And don’t try and catch a wave that is about to crash into shore. It’s all about patience. And timing. And making sure you’re set to ride that big tube when it comes.

This is one reason why buy-and-hold investors get ripped apart by the market. They have to ride every crashing wave, outswim every shark and weather every storm. They’re at the mercy of the ocean. As traders, we have the luxury of paddling back into shore, strapping our boards to the roof and waiting for our next moment from the comfort of our car.

We have entered a difficult period for the market.

There are now conflicting signals on the charts and we are a few weeks away from learning the details of the European bank bailout.

Anything can happen from here. After six months of selling pressure it is only natural that we see a bounce. How far the bounce takes us and whether the bounce is going to turn into a large rally is the big question.

3-Month Snapshot of the Aussie Market – Waves Rising and Falling
3-Month Snapshot of the Aussie Market - Waves Rising and Falling
Click here to enlarge
Source: Slipstream Trader

It all hinges on how the market responds to the European bailout.

My feeling is that the European leaders will announce a huge money printing scheme. I don’t know where else they are going to get the money from. If they do that then we may see a continued rally in the market until the music stops again.

Gold should take off to the upside if that happens.

There are certainly going to be opportunities for you as a trader going forward.

But at a time like this, you need to be patient. You don’t want to go shorting stocks when there’s such huge upside momentum. And you don’t want to buy right after the market rallies 9%.

For the traders I would say we will see some real action again soon. But the next few weeks may be rather quiet until we get some direction from Europe. Now is the time to be patient. And be wary of those sharks circling in the water.

For more in-depth analysis of my latest thoughts on what’s happening in the Australian market, please click here to view my latest free YouTube video update.

Murray Dawes
Editor, Slipstream Trader


Related Articles

Why Chinese Monetary Planning Means More Volatility for You

Australia: The World’s Investing Casino

Why China’s Hidden Debt is Bad News for Aussie Stocks

The Great Indian Coal Rush

The Other Side of Short Selling

From the Archives…

Can You Beat Goldman Sachs?
2011-10-14 – Kris Sayce

Three Stocks to Sell Before China Slumps
2011-10-13 – Kris Sayce

Why Allocation Beats Diversification
2011-10-12 – Kris Sayce

Huge Rally – Is the Low In?
2011-10-11 – Murray Dawes

Queensland Housing’s 100-Year Slump
2011-10-10 – Kris Sayce

For editorial enquiries and feedback, email moneymorning@moneymorning.com.au

Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au

FREE INVESTMENT REPORT: Why Dividend Stocks Are The Key To Retirement Wealth

In this report discover how dividend stocks can give you income long into retirement — even if stock prices don’t rise.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

Diggers and Drillers

A 3-Point Plan to Re-Engage with the Aussie Mining Boom

This new video reveals a way for Aussie share investors like you to RE-ENGAGE with the next phase of the mining boom…while valuations are still dirt-cheap…

The plan centres round three specific stocks.

To find out what they are, click here.

Australian Small-Cap Investigator

The Australian wildcatter
exploring oil's 'final frontier'

The US Geological Survey says this area contains up to 71 billion barrels of oil.

Only a few explorers have secured licences to drill.

One of them is a daring little Aussie firm that begins drilling 'in early 2014'.

According to small-cap analysts Tim Dohrmann it's impossible to speculate just how high this one could go. Find out why here.

World War D

Couldn’t make it to our
‘War Summit’?

Don’t sweat it. Click here for the next best thing…

World War D was the most important meeting of minds of the decade so far. What came out of it will almost certainly force you to reshape your investment plan for the rest of the decade. There's no way to go back in time and get inside the Savoy Ballroom of the Grand Hyatt.

But you can do the next best thing…
to find out what it is, click here.

  • ^NDX3534.532+1.446 - +0.04%
  • ^FTSE6625.25+41.08 - +0.62%
  • ^AORD5444.800+32.200 - +0.59%
  • ^AXJO5454.200+33.900 - +0.63%
  • AUDUSD=X0.9331
  • USDJPY=X102.585

Graphic Ad 1 – Blue Chip Stocks Report

Revolutionary Tech Investor

This report is about TECH MOON-SHOTS

Four of them, to be precise.

It's an early-days project. But one biotech aiming for the cancer moon-shot is already up - get this - 497.14% since tipped.

For four more tech moon-shots, click here.

Gowdie Family Wealth

The worst mistake you can make when handing wealth on to your kids

This brand new investor briefing shows you what your family’s in for if you don’t take care to leave your wealth to them in exactly the right way.

And it shows you precisely how to prevent infighting, recklessness and misunderstanding over money.

Read it here.

The Money For Life Letter

Holden. Toyota. Qantas. BUST

Do you really expect the share market to boom in times like these? That's why Nick Hubble says the best thing you can do right now is invest for safety and income.

This brand new video shows you how you can get predictable, reliable and rock solid cash flow no matter what happens in the wider economy.

You could lock in up to $20,000 a year - and that's just the start. See how here.

Sound Money. Sound Investments. [bullish prediction]

Greg Canavan's first bullish prediction in four years

Greg Canavan
doesn't make forecasts like this often.

When he does, it's because he’s found something that could make you money for years to come.

Read more here.

Is the Australian Housing Boom Really Back?

The Denning Report

2014 Predicted

Dan Denning accurately forecast 2013's flight from
bonds to stocks, the commodities crash and the
Aussie dollar top…to the exact week

In this brand new forecast report, he shares his
three critical predictions for 2014…

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

If these lessons can be passed onto the next generation, what a world it would be. Healthier, genuin [Read More...]

3D printing is changing medicine, consumer products, art and manufacturing. The impact it’s having o [Read More...]

Done properly, a retirement business can not only help fill a retiree’s time and replace their work [Read More...]

Free speech is no longer really a right at all. Governments, vested interests, and lobby groups are [Read More...]

Australian house prices are going to remain high. Perhaps finally, when the last baby boomer retires [Read More...]

If China eventually allows full cross-border movement of capital, an estimated $1.5 trillion in savi [Read More...]

We’re tipping that you'll see a change of attitude about the US dollar as the world's rese [Read More...]

The US dollar has value because the government levies $3 trillion in tax liabilities annually and ac [Read More...]

The best course of action is to focus on generating wealth and investments outside of the government [Read More...]

Since the US Federal Reserve’s relief efforts began, total world debt has gone up by $30 trillion, w [Read More...]


"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery