DEADShort term sentimentsDEAD

[vin]

New here – mostly swing trading. I’ve been searching for a serious site and believe I have found it here. Mr. To’s commentaries are excellent. Let’s cut to it - I for one am spooked short term (1-3 weeks). Here are my reasons:
First, the current rally just doesn’t seem to have teeth. The move up on June 29 seemed exaggerated. It was just a big ‘Hurrah, the Fed did what we expected.’ Many read a future pause into Bernanke’s statement but who knows? It’s almost as if the market ‘willed’ a rally.
Second, after this delayed follow through day the major indexes responded with a pullback on increased volume (modest in percentage loss).
Third, two days prior (June 27th) all three indices had what I call a ‘heave day.’ They climbed over the previous day’s high only to close lower than the previous day’s low – all on increased volume.
Fourth, there was no doubt some end of the quarter window dressing and short covering.
What has happened since? Some call it consolidation; I call it distribution and selling into bounces. The accumulation volume has been anemic. Although the holiday week clouds things the leading events remain.
Lastly, the most important thing is the gut. Something makes me feel very uneasy (see below). Maybe it was the synthesis of what I mentioned above; maybe I am worried about locking in gains on this recent move up. Nevertheless, I liquidated everything except LEN as I don’t think homebuilders can get beat up much more (gee, wonder where I got that idea?).
North Korea lobbing missiles into the sea doesn’t help. I think there will be one more shakeout before we test old highs again. I don’t know if we’ll sink to (or below) the mid-June lows, but it could be painful. Predictions are pretty much worthless until events transpire. I’m only building an arguable case. The market doesn’t care or need reasons to steamroll every naysayer out there. Let the tape decide.

Side note: I was reading my Bible before the market opened and came across these verses:

“With her enticing speech she caused him to yield, with her flattering lips she seduced him. Immediately he went after her, as an ox goes to the slaughter, or as a fool to the correction of the stocks…” Proverbs 7:21-22

I don’t claim to have divine intervention on my side, and starting my day with this verse might have been what spooked me. Take it for what it’s worth, but the wording in this verse is uncanny in its application to bulls running up a blind (r)alley. The Bible remains the best book on investing ever written (not to mention the invaluable spiritual content). If you don’t have one, get one.

[Goodfella]

my shorts are long term shorts

anyone can make a winning trade, im bored with that. but to sit on a loss and not fret, instead go out drinking every night till it comes good - that is an aquired skill you only get from 5 years trading experience


i can drink for another couple of years if i have to

[nodoodahs]

Two would've been perfect, but I don't expect perfection.



One buck lower would still be an improvement. At least I still have some margin ammo to throw at it, if the Wifeykins doesn't freak out too much.
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He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure, HE went to Harvard.

[rffrydr]

Do I hear two?

Dammit, Henry, why didn't you get on this? I cudda been making Goodfella money on this one.

Merrill broke first--China syndrome
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Today is the Tomorrow you worried about Yesterday!

[nodoodahs]

I shoulda set my buy limit on the SPY a buck lower than I did.


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He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure, HE went to Harvard.

[HenryTo]

MER sitting right on its 200-day moving average:

http://stockcharts.com/charts/gallery.html?mer

[HenryTo]

NY ARMS Index only hit 1.2 or so at the low today. Still nowhere near close to oversold, as opposed to the February 27 decline.

[nodoodahs]

We just had a correction. 12/15 to 01/30, no gain in the S&P 500 while we based for six weeks and rotated some sectors.

Short-term overbought I can buy. Medium-term, don't think so. Anticipated some weakness this week.
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He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure, HE went to Harvard.

[rffrydr]

I still think something changed over Thanksgiving:

http://stockcharts.com/h-sc/ui?s=QQQQ:$SPX&p=W&b=5&g=0&id=p37153503592

Masked by scramble for Winners going into bonus time.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Market somewhat weak given the good news coming out from Cisco and the productivity numbers. It is also overbought on both a short-term and intermediate-term basis.

Looks like market should correct here - but any correction here should be a good set up for further gains in late February and March.

Just an observation, and we are not making any changes on our DJIA Timing System just yet.

Henry

[HenryTo]

Market still holding on while the top-calling continues. Ticker Sense has over 50% of financial bloggers bearish - a six-month high:

http://tickersense.typepad.com/ticker_sense/2007/01/january_29th_bl.html

With the exception of Bill Rempel, of course.

There is a good chance the Dow Industrials could explode to 13,000 leading up to the Feb 9 to 10th G-7 meeting.

[HenryTo]

The action of the last few days looks very much like distribution to me. Many retailers and consumer discretionary companies are now seeing their margins squeezed in their traditionally profitable period. i.e. Not only are retail investors weary of the stock market but they are also weary about making expensive or large purchases as well! This may be due to a couple or the combination of a couple of things:

1) Weariness on the economy. Folks are raising concerns on things such as whether they will get a respectable raise next year and/or whether they will get laid off. Higher interest rates - leading to higher adjustable mortgage payments and higher interest rates on credit card balances are not helping either. I believe the Fed wants to cut, but the weakness of the dollar is currently binding their hands (no one wants a drastic fall of the dollar and even a gradual decline of the dollar will bring on inflationary expectations). That being said, I am bullish on the U.S. dollar starting now and into next year, and an uptrend in the dollar should allow the Fed to most probably cut in May.

2) Continuing deflation in consumer goods - not just because of the "Chinese effect" but also because of a continuing decline in the Yen and deflationary forces in the auto manufacturing sector. In other words, no one wants to buy something now if they know they could buy it at a lower price tomorrow.

That being said, it is immensely difficult to predict upcoming stock market action based on current news events coming out of consumer spending or retailers, so let's just take a brief look at our technical indicators. Sure, the distributive action of the last few days looks to be pretty bearish - but this is only to be heeded in the short-term. Once the inevitable correction and the short-term oversold situation comes along, it will then be more important to gauge the strength of any subsequent rally/bounce.

For now, the intermediate and long-term action of the market still looks decent:

1) Breadth indicators such as A/D line and McClellan Summation Index indicators just made a new high over the last week to last two weeks. Since these indicators usually top out 4 to 6 months before a major top in the Dow Industrials or the S&P 500, it is probably too early to be calling for a top in the major indices just yet. Sure, some individual sectors or stocks may "get killed" here, but that is to be expected if breadth has topped out (and we are not even sure that breadth has topped out yet).

2) Sentiment on the part of retail investors still relatively bearish - as exemplified by continuing mutual fund outflows from domestic equities, the 0.91 reading (as of Monday evening) in the Rydex Cash Flow Ratio, and the latest AAII readings. On the flip side, the latest ISE Sentiment readings are about neutral, and the Investors Intelligence readings have been on the bullish side - but I expect the latter to come down over the next couple of weeks.

3) Relative valuations against bonds, real estate, and commodities are still decent. And if we are really in a deflationary boom, then stocks should do very well relative to real estate and commodities. If we are in a deflationary bust, then commodities will have collapses by now but this just hasn't happened yet. If on the other hand, we are in either an inflationary boom or inflationary bust, bonds will have collapsed by now and that hasn't happened either. All in all, it looks like we are still in a deflationary boom period and the company that can produce the most at the lowest cost wins. That or you will need to have a great brand name (Apple, LV, Prada, Benz, Porsche, Waldorf-Astoria, Goldman Sachs, etc.) in order to charge higher prices.

It is tempting to look at the lack of excitement about the upcoming Holiday season and say "this is now the top," but consumers are about as fickle as what they do in reaction to quarterly earnings reports - so at this point, I am not that concerned about the distribution of the last few days. That being said, I certainly will not initiate any long positions here just yet. Wait for an oversold situation, get in, and then monitor the strength of the subsequent rally or bounce.

Best of luck,

Henry

[dash]

For those of you who don't subscribe to Decision Point, it's worth pointing out that, for the S&P, two of the indicators Swenlin uses to measure short-term overbought/oversolsold conditions (Climatic Volume and SPX % PMO rising) are at levels last seen in June/July, and that the indicators he uses to measure overbought/oversold volume and breadth (STO-B, STO-V), and which influence price over the next few days/weeks have all moved from overbought to neutral readings.

Short-term the market is oversold to neutral.

His intermediate term indicators of price, volume, and breadth are all somewhat overbought but are not showing any signs of topping just yet.

[nodoodahs]

Don't pay attention to any readings this week, all the playas are outta town.
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He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure, HE went to Harvard.

[HenryTo]

Equity put-call ratio running very low this morning. And the ISE Sentiment Index reading is coming in at a high 196 as of 12:30 EST.

My guess is that the market will stay relatively flat going into Thanksgiving as this bullish sentiment is worked off. I still don't see much of a correction at this point.

Best of luck,

Henry

[dash]

Henry wrote: