The Bubble
As we have unwound, and are still feeling the results of, a massive real estate bubble, one can only wonder about those who got it right. In hindsight, for those who understood what was going on and were able to take action, an absolute fortune was made. Or at least saved, and that was with hind-sight abundantly clear in regard to inflated valuations, exuberant expectations, and no cap placed on exposure.

In the late part of the 90's and the early part of the millennium, I began to notice something that I had never seen before; people refinancing their houses en-mass to fix them up, even when they were perfectly fine homes to begin with. People were upgrading their suburban homes to include hot tubs, decks, and new kitchens.

I remember having several conversations about how people were paying for the fix, and where the end result would get them. The answer was normally something like "We refinanced, and walked away with money at the closing."  In one particular case, I noted 4 separate contractors doing work at the same time on a home. The owner explained to me that he just bought the house, and financed it at something like 115%. He got the mortgage for the house, plus an extra 60,000 that he considered "play money". I asked him what his plans were for paying it back. He said "I will just refinance in a few years when the value of the house goes up."

When I asked what happens if the value of the home doesn't go up, I got a blank stare. He had no idea what was about to hit him in a couple of years, neither did most home-buyers at that time, because the over-leveraged world of finance had allowed unrealistic bubbles to form, that were easier to ignore than they were to question. The same is seen on traded charts every week, and yet many chose to ignore the signals because of the fear of loss, of potential gain.

Trading Differences
No matter what people tell you, it's never "different" this time. History is full of bubbles in markets, and this one was no different. It is the nuances that are different, but the underlying issues are always the same.

People believed there was no downside, and the "common" person got involved as well. Common sense had certainly become a little less common, and this is something that the new breed of Global Market Traders can use in our trading analysis, and in the subsequent expectancy that is formed by analyzing properly an over-extended (or bubble) market.

The Trend and Trigger
While I am more comfortable trading with the trend, I will take my technical set ups counter-trend as well. In a bubble or parabolic move, I have found that sometimes these opportunities present themselves in obvious technical patterns.

When a chart shows a straight move up, it can be a great way to take a trade.