Stocks – Worry Indication

I’m working on a WSW full posting, but thought I ought to put up this quick posting first.

A while back I’d said something like ‘looks like time to be in, trade it don’t trust it’ as there was a rising trend. We then had a nice run up. Now the broad market indicators are not looking so good. I still need to look at things like currencies, metals, etc. BUT, right now, it’s worth a quick statement that ‘things are looking tired’ on some important indicators.

First up, a broad look at markets, with NASDAQ 100 (dominated by Apple Computer) showing a nice rise, but the other markets lagging.

Broad Market Indexes - Nasdaq 100 vs S&P 500 vs Dow vs Russel 2000 vs Emerging

Broad Market Indexes - Nasdaq 100 vs S&P 500 vs Dow vs Russel 2000 vs Emerging

(Remember that you can make your own charts, and change the time scale and indicators, by visiting:
Bigcharts.com )

OK, first off, only the QQQQ have been on a “Rocket Ride” (IMHO largely due to the folks piling into Apple, that is a significant percentage of the QQQQ weighting). The others have risen, but have not so clearly exceeded prior highs.

Now look at the indicators.

RSI has reached 80 and is now dropping off. That’s the “First Call” for an exit. On a ‘lower high’ (that is, a dip, then rise that does not go as high before turning back down) we have the “last call”…

Look at MACD. Flat to drifting downward. Prepare for a ‘crossover to the downside’ with “red on top” as the confirmed exit.

DMI? It shows ‘blue crossed under black’, which is OK, but says ‘rise getting old’. As soon as black ‘inflects downward’ it’s “time to go”.

OK, the Price Bars and SMA lines part of the graph is a bit “messy” and hard to read, but has a lot of information in it. First off, notice that the QQQQ price bars are starting to pull away from the “Bollinger Band” upper bound. Not by much, and about like the last ‘pause’ that was followed by a new rise, but it’s disquieting. The SMA stack is still in the right order (fastest on top, slowest on bottom), so the “rule” is expect a ‘dip’ not a reversal.

HOWEVER…

Might QQQQ be overly reflecting Apple?

Now scan down to those “other indicators”. Especially RUT (that’s the 2000 stocks that are most of the smaller market stocks) Notice that IT has gone flatter faster at the very end? Now look down at EEM, that’s the Rest Of World Emerging Markets. Mostly things like China, India, Brazil, Russia, etc. It is even flatter and looks even more stalled. Now there’s an open question of how much this is just reflecting US Dollar vs ROWorld currencies; but the trend is “not good”.

NYSE (total New York LIstings, even ADRs) vs US Indexes

NYSE (total New York LIstings, even ADRs) vs US Indexes

Here we have the entire NYSE New York Stock Exchange vs U.S. market indexes. This includes foreign stocks that list on the NYSE as well as US. In theory, these are the “biggest and best” from around the world. It’s way under performing everything else.

(Oddly, using NYSE as a ‘ticker’ on BigCharts gave a ‘symbol not found’ but using the old URL with the SecurityID in it – that number”sid=3277″ in the URL, does still work…)

DMI/ADX+ barely made it into positive territory (blue on top). MACD has gone “above zero” so indicates “be in”, yet Slow Stochastic is poised for a downturn. As this is a 5 year weekly data chart, it is on a different time scale than the prior chart. So that “Slow Stochastic” fast indicator is about the same as MACD on the 1 year daily data chart.

This says, basically, that the rest of the world is just not doing very well and only the USA (and potentially even just selected parts of the US Markets) are doing the ‘work’ – which we saw above was largely the Tech NASDAQ group. That is looking just a bit tired.

Russel 2000 vs US Indexes and Emerging Markets

Russel 2000 vs US Indexes and Emerging Markets

If we look at the Russel 2000, it says that most of the stocks being traded have already “topped out” and have clear indications of a ‘roll down’.

RSI is already showing “lower highs”. MACD is “red on top” and with significant downward slope. DMI has the Black Line inflected down, and “blue ADX+ line dropping”, though not yet a crossover to ‘Red on top’. Still, it says “no new money in, start edging out, don’t short yet, but be ready if a big down day spike happens”

So, all in all, this “context” says that there is most likely at least a significant “dip” coming soon, and quite possibly a significant downturn.

News Flow has been poor (potential conflict with Iran and Syria, Greece bailed out AGAIN, and Italy wanting some too, US Gas prices spiking – that usually causes a downturn) and next week we have The Bernanke talking. I don’t know what he can say that would NOT spook markets. We’ve also got an EU decision next week on part of the Greek Deal and a EU Central Bank announcement on some Financial Games they are doing to third party the debt / risk from Greece.

Given the state of the indicators, I’d expect Shorts to try a run to the downside (watch for a big down spike day, then a weak recovery the following day, followed by another down spike as Fat Wallets bet they can scare everyone else.) Given that volatility has also gone “way low”, buying “Put options” to protect positions will be attractive. Market makers then do a “conversion” to hedge out their risk. Part of that is a short of the underlaying stock…

All in all, I’d expect at least a dip, and likely a large one. This can be both an opportunity to short (on that third day, second dip) and an opportunity to ‘buy cheaper’ when the short run wears thin.

What it is NOT, is it’s not a good time to hold long positions in stocks, especially foreign ones or those in smaller capitalization companies. Move any “must be in stocks” positions to low volatility low beta stocks with large dividends and / or hedge them (with “puts” or with a counter moving issue such as metals or energy)

OK, with this “fast notice” up, I’m going back to the Full WSW work…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Wall Street Week... and tagged , . Bookmark the permalink.

28 Responses to Stocks – Worry Indication

  1. Tony Hansen says:

    Thankyou EM.

  2. adrianvance says:

    If you will notice: The market decline went into a dive when Obama got the nomination and it only steepened as it became more apparent that he would be President for the color of his skin and no other reason as he had no record, resume’ or reason to be. Then, he assumed office and Bernanke started printing money with billions going to banks that did not lend it. Where did it go? Into high grade stocks, but the activity created an updraft of the kind fools follow and here we are on a combination of Monopoly(tm) paper and fool’s funds. I’ll let you write the ending. I cannot bear to do it.

    See the Two Minute Conservative at http://adrianvance.blogspot.com if you enjoy sharp stick politics, raw science and humor.

  3. adolfogiurfa says:

    The Dow over 12,500 points makes the bubble nearer to its breaking point: Lies do not last too much being bigger and bigger. 2008 on steroids ahead?

  4. adolfogiurfa says:

    @E.M especially foreign ones.. In this you are absolutely wrong….
    Though it is not the same but in my country you can get a saving account paying you a 14% interest rate, and it is not a Ponzi scheme, the fact is that such a financial institution lends money at more than 40%,to small businesses while delinquencies on credit is below 1%(this is for the whole financial system).
    The first world is in real trouble. Just think where has the elite moved to?
    Are they still living in NY? Are they buying “stocks” or land properties?
    “Pick you sh*s folks, the planet is not going anywhere…we are!” (George Carlin)

  5. Bruce Ryan says:

    Do I understand correctly? Energy/oils may ride this out OK?

  6. Pingback: WSW, Saturday, 25 February 2012 « Musings from the Chiefio

  7. E.M.Smith says:

    @Adrian Vance:

    It wasn’t Obama’s skin color that caused the early drop, it was his PARTY and LOCATION. An awful lot of folks know what “Chicago Politics” means, and you put a “Community Organizer” label on that along with Lefty Promises and it was real clear he was not going to be pro-business… Color or no color.

    I actually voted for him in the primary as an “ABC” Anybody But Clinton voter, and then he went and put her in as S’try of State. Bahh! We got her and The Machine anyway…

    ( as an Independent, I could vote in the Dem primary but not the Repub one and the libertarian ‘race’ isn’t…)

    Note that Herman Cain WAS leading the Republican candidate pack until the smear campaign started from the Obama party… They didn’t want a ‘black on black’ race and lose the Race Card.

    Me, a white guy, and my White Guy Florida Friend were both peeved as we liked Herman and were planning on voting for him… So I think it’s much more about “Lefty” than skin… Now that was in Florida, so it’s “South” but with some “metropolitan mix” so not all deep south. Still, there was a fairly strong Conservative Vote for Cain… even in the south…

    @Adolfo:

    Note that I specifically said STOCKS and added an ‘especially small ones’. That has nothing to do with savings accounts… This is not a “Financial Collapse” notice, just a ‘trade out possible’ notice.

    When stocks sell off, thinly traded issues have a harder time finding buyers, so the prices drop more. Foreign small stocks that are thinly traded take the most ‘whack’. It has nothing to do with the quality of the company, only the size of the market and the number of market makers when everyone wants the exit at the same time. Market dynamics, not company nor country ‘worth’.

    Foreign markets are always more volatile (wider range in both directions) and in a sell off move further and sometimes faster. It’s irrational, but it is what happens. (If you time it right, you can make good money from that, buying crazy cheap stocks on sell off panic days…)

    It is also unlikely we’ll have a major collapse (most ‘weak hands’ have not come back into the market). Crashes like 2008 tend to only come once every couple of decades. I’d expect a “dip” not a crash. (Unless we get some kind of new-news about a complete financial collapse; it’s more likely to just be time for a ‘stagflation’ with a market ‘correction’ in the USA.)

    @Bruce Ryan:

    Um, it is often the case that oils / energy moves in opposition to stocks. If energy rises too much, economic activity drops. Eventually that causes demand for oil to drop and it comes down, letting activity pick up, and then stocks rise again… It’s not always cyclical like that, but often.

    It’s a bit more complicated, so in “sector rotation” you get some sectors rising while others drop. In a general sell off, just about everything drops and “risk off” instruments like cash, gold, and bonds are the “safe havens”.

    See the WSW posting I just put up for more things that look like they will still go up for a while. Refiners and Integrated Oils along with Oil Services all look better then the broad market.

    @All:

    Given the comments above, I feel I need to stress what this posting IS NOT:

    This IS NOT a “Market Crash” posting.
    This IS NOT a “Makret headed down NOW” posting.
    This IS NOT an “Economy Tanking” posting.
    This IS NOT an “Economy slowing” posting,.

    This is JUST a technical posting that has to do with Stock Trading. That the market has run up for several months, and is likely to have a “correction”. A correction is usually 10% to 20% max. I’d guess about 10%. It’s most likely that the prices will stop at the middle of the Simple Moving Average stack.

    It is a chance to “save” about 10% of “drop” and then make another 10% of recovery.

    IT is NOT “End Of Life As We Know IT”!!!!

    Ok?

    Just a trade timing point..

  8. adolfogiurfa says:

    @E.M: Oh! I thought some mayans had red hair :-)
    It´s not about 2012…..sure?

  9. Pascvaks says:

    $.02
    @Adrian – OBYuan ain’t the problem. Neither is Mitt, Rick, Ron, nor Nutt the solution. The “PROBLEM” is your local Rep and two Senators. That’s the problem. Want to turn the country around and get it heading in the correct lane at 120 MPH and 99 MPG? Elect any @#$%#$@$% bozo you want for Prez, it takes no skill a’tall to sign your name on a piece of paper, AND elect one new Rep and two new Senators that know how to say “Hell No!” (for one term, power is opium;-)

    EM –
    Thanks! I’m slowly getting to the point that I barely understand a little more than I did when I was born. My mother said I was quick then. Maybe in my next life…. ;-)

  10. E.M.Smith says:

    Well, we had the predicted “Dip”, and now we’re having the ‘bounce’ after the dip.

    News flow is all positive, while folks look over their shoulder… I’m still worried by the divergence between RUT Russel 2000 that is negative indicators, SPY S&P 500 that’s more neutral, and DIA Dow 30 that’s more nearly dead flat.

    IMHO the “buy the dip” trade is over and it’s back to ‘worry and wait’. I’m re-hedged and waiting for things to either have “failure to advance” and resolve to the downside, or a new resolution of upward movement. As of now “it ain’t over”…

  11. Pascvaks says:

    Drudge is a’twitter (that old word just doesn’t seem to say what it used to) with doom and gloom. Have you heard that Congress just revoked the First Amendment (no protesting around the SS –Secret Service)? I think we’re heading for a Hard Bottom soon, the next Crash is going to be a real splat;-)

  12. E.M.Smith says:

    Well, we had the dip, we had the rebound, and now we’re back into the ‘falling away’ area.

    On a trade basis, it’s not all that interesting (maybe range bound swing trades?) but on an investment basis, it’s looking a lot more like ‘break down’ than ‘melt up’. News flow is disappointing and not much good happening. I’ll work up a WSW posting ‘soon’ but at this point it’s more “cover in cash” than anything else (and some TBT – shorting bonds…)

  13. adolfogiurfa says:

    @E.M.Smith: If bonds follow the sunspot cycle, this cycle will be totally different, so look for the safest now. The sun was expected to be at its maximum and, for any normal being it is now spotless….”So…pack your sh*#s folks….”

  14. R. de Haan says:

    “Thunderbirds” ready for takeover global Management
    This is a brainwashed bunch of MBI idiots who mention words “sustainable, honesty and integrity in the same sentence
    http://www.thunderbird.edu/

  15. p.g.sharrow says:

    @R. de Haan; Join the Thunderbirds and be the Elite of the Elite, We are the rulers of you all!
    Looks like a supercollage training scam to aquire wall hangings and impress people with more money then brains. But then I am just one of the serfs so what do I know.
    “Big crash comming”, looks like it’s here, stock market down 5days and counting, oil nearing $100 and is headed to $97 and world bonds are sliding, with interest rates starting up and world economic production heading down as manufacturing is starting to move back towards the US! Oh yes Santorim just suspended his campain today, and yesterday Geinrich vowed to stay the distance. Interesting times we live in!
    Prophecies are that the Obamanation will be replaced by a wise old man. Some how I can’t see the RINO Romney as the “Wise Old Man”. pg

  16. R. de Haan says:

    @ P.G.

    I have ZERO confidence in Romney. He ‘s on the same agenda as Obama. No Change.

  17. adolfogiurfa says:

    Cheers with SOMA! and a Brave New World ahead….but the ultimate conspirer, the one who will be recognized after big tribulations, will take care of those who did not worship the Golden Calf.

  18. R. de Haan says:

    MIT just came out with a report that the world wide depression which will hit by 2030 will cull 5 billion people. With their report they are recycling debunked Club of Rome alarmism with a small addition. Global Governance now is our only salvation.
    http://www.activistpost.com/2012/04/global-great-depression-and-population.html

    No longer send your kids to MIT for an education.
    MIT has become the New Club of Rome.

    Isn’t it incredible how once established institutions have thrown their reputations out of the window by publishing this kind of activist crap.

    This is a bloody shame.

  19. adolfogiurfa says:

    @ R.de Haan: world wide depression ….hmmm, translated from American slang into English language: “USA economic depression”, and you won´t need to wait until 2030…..

  20. George says:

    Can you please provide a link to anything from “MIT” that says what that article says? I notice they mention “MIT” but produce no link to it. This might be a case of a researcher who also has a position at MIT spouting off some nonsense and someone attributing it to the institution when it is just the product of one person. Sort of the same way people often attribute the work of a single journalist that is carried on a newswire as the product of the Associated Press.

    A study produced some 12 years ago by researchers who build a computer model at MIT is not necessarilly a work backed by MIT itself.

  21. R. de Haan says:

    @ George
    You’re right George.
    This is all news based on an old MIT report.
    http://news.yahoo.com/blogs/sideshow/next-great-depression-mit-researchers-predict-global-economic-190352944.html

  22. p.g.sharrow says:

    WWIII is going on right now, has been underway for a generation. The great depression is already underway and we have yet to see the bottom. The educated talking heads just don’t see it as they haven’t read about it in a book and think it must happen someday in the far future. While it may not get much worse for the general population, the rich elite and their servents will see a great reduction in their economic conditions and their ability to garner wealth unearned. Those with paper wealth and great pensions will see a large reduction in their apperent wealth as runaway inflation makes their paper wealth worthless. Good time to invest in things that produce wealth that people need and will pay an inflating price for. pg

  23. George says:

    Jimmy Carter started WWIII. In fact, Carter’s war is still being waged. You can thank Jimmy Carter for Hezbollah in Lebanon, Hamas in Gaza, al Qaida, the Taliban, the Iran/Iraq war, the first Gulf War and the second Gulf War. Jimmy Carter has a lot of blood on his hands and it is being refreshed every day.

  24. p.g.sharrow says:

    Jimmy Carter was and is a useful fool for the Soros Oligarchy.
    Those that espouse the expansionist theories taught by the Mullahs must be drenched in blood until they are sick of death as was done with the Germans and Japanese in WWII. At least at this time 98% of the dead are Muslim as one group kills those of other groups.
    “Whom the Gods would destroy, they first make mad.”
    At present the Social Demoncrats aka. communists are our greater problem as they wish to establish “The peoples Dictatorship of the World” to be run by self appointed Elites. We need to create self governing local communities of people, the smaller the government footprint the better. pg

  25. E.M.Smith says:

    @Adolfo:

    Right now we’re having a ‘risk off’ trade, so US Treasuries are enjoying some inflow – but stocks are dropping on ‘spooky data’. I’m doing cash, mostly (I’ll short stocks on a return to the SMA lines from below) and bonds have little long term upside, but a BIG downside when The Fed gets done inflating the balloons with free money. At that point, TBT, or shorting bonds, will be a major trade.

    One of the most important things about trading, and one of the hardest, is to have ZERO PASSION about it. NONE. Not a drop. I have no emotional engagement at all with U.S. Treasuries at 0% interest or at 20% interest. I have no expectation at stocks to go up, down, sideways, or crash, or not. All that matters is this: Is there a trade that can be done, with a higher then even chance of making money? As soon as you have “emotional engagement”, the ability to do the trade fades.

    @R. de Haan:

    As soon as I think “There’s a big crash coming” it will color my trades in such a way as to be on the wrong side of the trade. Maybe one “day one”, but eventually you end up ‘married to the trade” and unable to ‘swap sides’ when the indicators say to do it. So, for example, all the folks who where “married to silver” and even worse, the ones who had embraced the “Story”. (There is ALWAYS a ‘story’…) So they were happy and raking in money like crazy on the parabolic spike. When I said “that’s a bubble, it’s going to roll over, exit early rather than late.” I had a ‘grill full’ of folks trying to “explain the story” or advocating for what they EXPECTED or BELIEVED. Few were willing to embrace the mechanics of markets as more important that The Story and The Belief.

    Now, to some extent, any time you trade you must have some kind of expectation about what will happen; but the distinction I’m making is that I have no emotional expectation and no conviction driven expectation. If the very next day the charts move against my trade, I dump it. Immediately and without hesitation or reservation. Because it’s not about me and it’s not about my expectations. It’s all about the other players in the market and what they are doing. This is a game of “Liars Poker” writ large and you simply must watch what all the other players are doing to make ‘bad bets” and pay little attention at all to what you feel, think, or believe. THEY make the market, no you.

    OK, with that preamble:

    Right now there are two competing forces. Earnings have been good. P/E on a forward basis makes stocks incredibly cheap right now. Despite the recent run up. The Fed has said bond interest is simply not gonig to be effective competition. By all rights, stocks ought to have years of steady rises ahead. On the other side, the folks who had planned to retire on their portfolios saw them cut in 1/2 in the crash, then had a couple of ‘flash crashes’ and have just decided to call a safety and down the ball. They have ZERO interest in playing that game again. So who is going to be the buyer for those stocks?

    This is part of the ‘demographic bomb’. The “Boomers” will all want to cash out their homes, portfolios, and safety deposit boxes and retire at the same time. Not much in the way of buyers to pick it all up. (Maybe China and India, but they are trying to sell us stuff, not buy much…)

    So it all comes down to this, IMHO:

    The “market makers” did a decent job of scaring folks into dumping in 2008 and picked up a lot of paper on the cheap. Now they’ve run it back up and want to cycle again. Yet volume has been low. Most of that volume has been hedge funds playing against each other anyway. So we’ve got a minor ‘wealthy class’ and everybody else who is, in large part, no interested in playing. We’ve got some overseas folks who would like to buy, with our money, from selling us stuff, and we’re all (collectively) about 1/2 as rich as before, so not buying as much. (Thus China slowed down…)

    Putting on my “Macro” hat: The EU is still trying to decide “Murder or suicide?”. Will Spain, Italy, etc. commit economic and political suicide or will Germany and the IMF murder them with “Austerity”? During that time, the EU is not buying as much Chinese stuff. IFF they go the German Austerity route, China has an even harder time (and Brazil and India and…) IFF they go their own way, leaving the Euro Zone, they inflate away their problems, but their national currencies buy ever less Chinese Stuff (and even less German Stuff). So everyone is looking at the US Consumer (again) to bail out the global economy via buying all that EU and Asian “stuff”. But we’re ‘way broke’. Not only is the average consumer looking at 1/2 the wealth and prices for food, fuel, you name it, rising way faster than official inflation, but the Fed Gov’t is at near $16 Trillion of debt and rising by $1 Trillion PLUS per year for all foreseeable years.

    The necessary conclusion of THAT is simple: IFF Asia wants to GIVE us stuff, we’ll take it, and inflate away the bill. IFF The EU wants to GIVE us stuff ( or put it on the Chinese Credit Card), we’ll take it and inflate away the bill. In no case can we even begin to think about every paying that bill. Not enough workers and making damn little ‘for export’ ( a nurse at the old folks home or more sales at Denny’s do nothing to offset a German Mercedes or a Chinese box of plastic or iPhones). That game won’t hold up long. Then we have a SHTF (Stuff Hits The Fan) moment.

    Is that moment NOW?

    I don’t think so. (But anything with I THINK in it is subject to dismissal as “It’s not about me”). What I would expect now is a modest decline as a few more rounds of “Being Japanese” are tried. (Interest rates near or at zero, stagnation, a lost decade or two, malaise – but no crash.) Could we have a 20% drop? Sure. ANY TIME no matter what the context, you can have markets do that. Especially now that the uptick rule is gone and old fashioned “Bear Raids” can be done. With those rules, the Bears can always create a panic by shorting any given target so much folks are run out of it. (“Fattest Wallet Wins”).

    Worse, if the Buffett Rule gets past, very rich folks will be running away from dividends like crazy and a load of “safe” stocks with high dividends will get creamed. Dividends being one of the few things that help stop Bear Raids any more.

    In essence, the combination of policies from The Fed, the proposed tax changes, and market / trading rules ( no uptick rule, no effective checking that hypotecated shares were really available, most stocks now being in brokers accounts so subject to lending / hypothecating so the shorts can borrow and sell almost all the shares in existence, etc. etc.) have made a very unstable situation and one where the shorts with fat wallets can simply drive any stock to near zero. That’s why you see me in cash so much (especially if not watching the market every single day all day. I could drop 25% in one single day.)

    Worse, the level of derivatives being traded is becoming so large that we can have a ‘tail wag the dog’ situation. (This is due to an odd thing called a ‘conversion’. If I buy a “put”, and the broker / market maker want’s to stay neutral, he can sell me the put, but then short the stock against it. He pockets the commissions and has essentially zeroed his downside risk. There’s a bit more to a conversion than that, but the part that matters is the shorting of the stock part). So a load of folks buying puts for a few pennies each can cause huge volumes of stock to be sold short by the brokers. (THEY are not subject to the same margin rules as the rest of us and they get to have buckets of ‘free money’ from The Fed to fund this operation.) Now take a hedge fund with, oh, $500 Billion to trade. Realize that they can buy an option to “put” Apple for $1 (or less) per share. That means they can effectively cause the shorting of 500 Billion shares of Apple (if they can ge a ‘fill’ in size). Yes, at some point you run out of Apple shares to sell (no more are available to hypothecate). Yet we have cases where more than 100% of a company’s shares have been ‘sold short’. The policing is basically broken.

    So exactly how can you say that ANY stock will have it’s value held up when The Fattest Wallets can cause massive price swings without the cooperation of any seller or buyer other than a major brokerage house taking their business and doing a ‘conversion’ on the options?

    I know, fairly technical, but I think it’s clear enough. ( If not holler and I’ll expand bits).

    Bottom Line is that the market rules that were put in place to prevent Bear Raids like in 1929-32 have been removed, and we’ve given them the new high leverage tools of derivatives to ‘lever up’ their already fat wallets. IMHO, with those rules, it is not possible to be an ‘investor’, and the only option is to be a mini-hedge fund manager. ( So that’s what I do…)

    BTW, that’s also why my ‘system’ works. I watch the indicators that the Fattest Wallet guys watch to decide when to short hard / cover cheap. All I really do is predict how those folks will behave and react accordingly.

    Right now, looking at the indicators, we’re generally set up for a pretty good Bear Raid now. We’ve had the Long Rise, the “top wobble” (above where I said ‘trade out, buy back, then step aside” though I was a bit weak in the ‘step aside’ notice). At this point, we have big down days. (Today was one such). Typically we get a pause, and things rise a day or two (going back to they SMA stack from the bottom side) then the big hard press of shorting happens.

    Will that be enough to cause a panic? IMHO, it would IF we had a lot of ‘the public” in the market. (And here is where that preamble above comes into play…). BUT we know that a lot of folks have just ‘checked out’. So I expect a load of volatility as the hedge fund manager and the high frequency traders have their computers ‘duke it out’. (Most of the volume on the markets is now from computer driven trading – no person need apply.) As I have no desire to get between two sets of large computers as they find out who has the fattest wallet and the better programmer, I’m stepping to the side (other than some modest ‘day trade’ type activity.

    The upward momentum is broken. We’ve had a ‘failure to advance”. We had a ‘dip’ that returned to rising, but faltered. It’s now resolved to ‘falling away’. Will that stop at a 10% loss? 20%? Or 40%? If I had to “expect at it”, I’d pick about 20%. BUT the market will signal when it’s done enough via the price action.

    With as many folks ‘on the sidelines’ (especially in the retail sector) or committed to bonds for income and NOT going back, I’m just not seeing enough ‘weak hands” holding volumes of stock to be panic driven into major dumping. So I don’t see it hitting a 40% drop. At the same time, with The Boomers sucking out money to live on in retirement, there will be consistent selling pressure from the retail side. So I don’t see a lot of long term 10% year over year gains from economic expansion and a large generational ‘investing for retirement’ retail cohort.

    In short, I think we’re “going Japanese” and the model is the Big Drop, partial recovery, then long drawn out sideways wobble for decades. Plenty of 10% or 20% ‘wobbles’ to trade, but not a lot of trend to invest in.

    But, as always, when DMI and MACD are “blue on top” and the price is over the SMA stack, well, “Never fight the tape”…

    Sidebar:

    As folks will notice, I’ve now got a new keyboard to use with the laptop. It’s a wireless one, so I get to type with my head turned 45 degrees to the side to see the screen, but it works ;-) We’ll see how it works out…

  26. Pingback: WSW, Saturday, 14 April 2012 | Musings from the Chiefio

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