This Is Why The Tape Is As Bizarre As I've Seen It

As readers have probably noticed over the last few days, I have not had much to say regarding trading. Sure, I could have rambled on about this and that, but, other than B.S.'ing, I was finding the trading environment boring. Last night however, I was noticing some subtle signs of stocks breaking down on 30 and 60-minute charts. While I have no intention of trying to play a reversal pattern on longer-term setups (I will leave that to the Derrik Hobbs and Dave Landrys), this does impact how I trade in the coming sessions.

Last Thursday, until Globex went down, the indices were under pressure, and as a result demonstrated some great HVT trades. This indicated to me there are many a nervous long out there. When this situation occurs, it inevitably leads to some great trading on an HVT basis. So while yesterday's close was by no means overly bearish, some of the underlying stocks are looking a bit "tired." Remember, we do not need to know future direction in order to make money, we just need decent movement intraday, something that has been lacking lately. If a healthy sell-off is what the doctor ordered for good price action, so be it.

However, at this point it is hard to believe that the pullback will be anymore than that, a pullback. So while some good shorts may be in order in the next few sessions, be on the lookout for aggressive buying if the indices begin to consolidate.

As Michael Belkin of the Belkin Report states in his most recent edition:

Global equity markets have surged about 17% on average since early March. While the rally can be attributed to Iraq ‘peace’ relief -- portfolio managers are now faced with some crucial decisions.
1) Is this just another flash-in-the-pan bounce, or is there greater upside potential?
2) Is it too late to buy, or should I jump in aggressively?
3) What do I do with all these defensive industry group holdings, shorts, cash and bonds I have accumulated over the past three years?
4) How can I ever buy tech stocks again after that bubble has burst?
5) Since the economic data appears dreadful and equity market overvaluation persists -- can I keep my job by being a worrywart?

So our answers to those questions posted above are:
1) This equity market bounce should be bigger than anything experienced since the bear market started. Global stock indexes are probably just 1/4 of the way through a rally that has 3/4 more to go.
2) If 3/4 of the advance remains ahead, it is early enough to join in by buying dips (not by chasing rallies). 3) Most defensive industry groups are overowned like tech was at the top and should suffer the same fate (at least in relative terms). Short exposure should be painful until the extended rally peaks. Bonds and cash should under-perform stock indexes.
4) Janus, Fidelity and everyone else spent the last three years dumping most of the tech stocks they accumulated during the bubble and buying defensive stocks. Order flow from the big boys will dump lowbeta stuff and chase back into tech if the market races higher.
5) Bubble people lost their jobs when the market crashed. If stocks rise significantly, defensive managers, shortsellers and hedge funds who get the rally wrong could be in the same position.

That makes sense to me and explains why the tape is as bizarre as I have ever seen it. 

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As always, feel free to send me your comments and questions.