Wednesday, March 12, 2008

MCO Update

Well shucks, Monday's little fiasco blew out the 10% Index again. When the 10% Index, the 10% exponential average of the advances - declines, goes below -500 it is an indication of extreme selling pressure. Even though one can expect the popular averages (ain't so popular today, huh?) to bounce, in order to relieve the temporary excesses, it is usually followed by a retest of the price lows at a later date. How much later, you ask? Varies, like everything else the market does, but usually if it happens within a few days it doesn't really satisfy the requirement. If you look at the incidences on the marked up chart, you will see they have been separated by anywhere from two to five months. This seems to be about the normal expected span. While, two to five months can seem like a lifetime if you are a trader, over the short term acting like there will be a bounce is generally a profitable strategy.

So, with this pesky little witch doing triple backflips in the next week, I'd be looking for a bit of volatility. About now, the general public including, the less than slick hedgefund masters, are probably changing their underwear for the third time in as many daze. Since the market seems like a machine for making most of the people wrong most of the time, I would almost bet, if I was a betting man, that the boyz will take the put buyers to the cleaners by expiration. On the Monday or Tuesday after expiration we might look for another market plunge, so the boyz can effectively market the next batch of puts.

So after that bit of volatility, it will be time for a springboard rally. Hop on the solar stocks, summer's coming.

Click to enlarge

1 comment:

George said...

On a different board I was asked
George Ure is of the mind, with a little help from Landry, that we go to 14,700+ in the Dow by June and then a scary decline in the Fall...

To which I replied:
14,700? I’m laughing at myself, ‘cause my first thought was "gee, where are we now?" I had to pull up a chart to see. I am going to pass on making predictions of this sort. Primarily, because I’ve discovered that when I’m wrong, I get caught looking the wrong way for something I predicted and therefore expect to see but don’t.

I admit to making this error on last October’s rally, October’s usually a low, right? Oops. One of the things I do think I’m seeing are some odd effects caused by both hedgefund activity and the existence ETF’s in both directions. It appears that some of the seasonals are shifting around because everyone knows about them. One case with real evidence for this, is that Canadian hedgefund that went bust by over-playing the seasonal long in Nat Gas against the boyz. Gold is messing with it’s seasonal this year.

So all this leads me to believe that I’m better off just following what the market is doing and not worrying about what the final numbers will be. Right now, the markets are oversold enough that I think a sustainable rally will occur.

My definition of a "sustainable rally" is one that lasts for more than two days, the market’s have had a tough time with this recently. I’m funning you a bit, but there is some truth to this when the markets are this oversold, it ain’t over ‘till it’s over, and it takes a four or five day rally to change peoples perceptions. We had a big move Tuesday and John-Q sold it today, "oh, ye of little faith."

Another point to consider is that both bottoms and tops are not monolithic, sectors finish up their moves at different times, the financials are still negative, basic materials and stocks like CAT seem like they have made their lows for this cycle. So, I suspect it will finish up the same way, whether it’s at 14,700 or 20,000 is less important than recognizing the turn and acting accordingly.

Next week is the 142 week cycle CIT
1-16-2000 (HIGH) to 10-6-2002 (LOW)
to 6-26-2005 (Minor Low)
next week (? Should be a low CIT?)