Is This What You Waited For?
Years ago during a live
performance by Philip Glass, the composer took the stage and sat at
his piano…for nearly three minutes. The nouveau song writer did not generate a
note or even a singular sound during the time he remained seated. This
groundbreaking "work" which was entitled "2:55" (two minutes
and 55 seconds) for the amount of time he sat without generating a sound was
heralded as cutting edge creativity by the critics as Glass’ intention was to
make the audience aware of the sounds around them for the time he sat at his
piano. Glass maintained that these surrounding sounds constituted a piece of
musical work.
Fast forward to July, 2001.
TradingMarkets commentator and trader extraordinaire,
Goran Yordanoff, did not write a
commentary piece nor did he follow the market’s action for the past four
sessions. His reasoning was that the market had clearly come to a short-term
bottom on July 24 and that the resulting retracement back up would be extremely
choppy and unpredictable. Thus, by not uttering a sound, Goran
was actually making a very important statement that "when you are in doubt,
stay out."
The market is always there five days a week. I have made
my worst trades when I felt I had to manufacture something and the clear setup
wasn’t there.
The market is full of mixed signals right now on both the
bull and bear side so the
trading pattern over the next one to three weeks is not clearly evident.
One thing is for sure: whenever I start
hearing the analysts and gurus on television brashly proclaiming that there is
no risk to the market at the present time and it is perfectly safe to put more
money in equities, I get nervous.
They said the same thing about the Ford Pinto.
Here are my thoughts about the current market environment
and the bull/bear struggle
at present:
- Nasdaq short interest hit all-time highs in July. NYSE
short interest is on
a five-month trend of consecutive new highs.
This does not support further
downside at the present time because the
masses are seldom correct. This argument alone is what prompted me to cover
all short positions on July 24
when the SPX hit my target of 1170. This one goes to the bulls. - The cumulative breadth of the NYSE is looking extremely
positive for the last three months and may signal an impending move up to
11,000+ is in the cards. This one definitely goes to the bulls. - Wall Street analysts and market strategists continue to
recommend the highest levels of stock ownership in history. Does this mean
that anyone who wants to be
long is already long? Judging by the complacency reflected in the VIX/QQV/VXN
readings there has been a marked lack of selling during periods of market
weakness. This is not positive as the market’s inability to
go lower is not a result of buying, but rather, a product of a lack of selling.
Wall Street has continued to become more and more bullish on each
failed rally attempt and there have been
virtually no periods of investor panic, incredible for a bear market of this
magnitude. Currently the ratio
of bulls to bears is 2:1, evidence of extreme
complacency. This is most certainly a negative. Chalk one up for the bears. - Industry be damned, long live the consumer? Industrial
production has been falling
for eight straight months. History clearly shows that any period of three
straight monthly declines in the post-war era has never taken place without the
presence of a recession. This week also gave us a Chicago PMI number that
recorded its 10 straight monthly reading below 50. Can this still be called a
"contraction"? In addition, the almighty consumer that is
rumored to have the buying power to stem the recessionary tide might be getting
in deep doo-doo. Consumer confidence fell this week for the first time in three
months. The consumer income/spending figures once again showed that the consumer
is spending more than he is making, thus magnifying the negative savings rate
and increasing their debt service. Add to the mix that
mortgage refinances have been steadily declining since April and we may be
witnessing the beginning of the end of the consumers reluctance to roll
over and play dead. These facts all go into
the bear side of the equation.
Many of the bear points mentioned above pertain to
fundamental analysis, while
the bullish points favor the technical side of
the equation. In other words,
the bearish arguments certainly demonstrate that the market and economy
are certainly going to get much worse in the
next 12-18 months, yet there are some
very bullish short-term influences that should continue to exert upside pressure
on the indexes.
The S&P 500 cash index will most definitely have huge
resistance in the 1230-1240
zone, but may continue to grind higher after shallow pullbacks in the short
term. All in all, this is a market that is intent on getting you
and I to commit one way and then pull the carpet out from under us once we feel
nice, safe and cozy. I don’t want any piece of it. A seasoned trader
knows how to adjust their trading size, volume and style to protect their
capital and maximize their returns. Just
imagine if you can eliminate the five
worst trading days you had in the past year, how would your profit/loss numbers
look?
Holy cow, the lake temperature is 82 degrees here. I gotta
go.
Join me tonight on www.webfn.com as I will be sitting in
as host on "Dr J and The
Traders."
Goran