Strange Winds Are A-Blowin’

• November 8, 2002
• Dave Floyd

I do not know about you, but this market continues
to be rather peculiar. One day, Wednesday, there is more volatility
than there had been in a few weeks, and then Thursday, despite the “range” and
the net change, the intraday price action was rather quiet. 

Naturally, markets go through cycles just like everything in life/nature. The
current trading range is nothing more than a cycle, unfortunately one that
offers a only a few morsels a day. Nonetheless, they are there if you are
patient.

If I can digress for a moment…  Naturally, the FOMC rate cut had
been factored in, but perhaps not a 1/2 point cut. You can look at this one of
two ways:

1. The economy is in really tough shape, and the Fed sees something looming
   on the horizon or…
2. It was done in the same manner as a shotgun blast. Quick, dirty, but
   effective.

Like the accompanying statement said, “That’s it, fellas.” So, if you were
planning on doing some borrowing for Cap-ex, it won’t get any better. The
problem perhaps is that regardless of how low borrowing costs are, if the
desire/need to spend is not there, it is pointless. It appears as though this is
the case. So, we do not have the typical recession/expansion
equation. Overcapacity is the problem now, and low rates will not solve that.

And this, in my opinion, is why the markets are tentative. It also explains
why just about every economist has been dead wrong about predicting the turning
point in the economy. Granted it is not an easy task to begin with, but what
most are leaving out of their classical definition of a recession is the excess
and overcapacity. So, rather than getting long trending moves in the stock
market, we get chop. And until there is some clear evidence of an imminent
turnaround, expect more of the same. Sure, there will be some great moves here
and there, but any consistent price action will continue to escape us.

To add on to that, think about this. The investing/trading style in the last
decade has been momentum-based, naturally, the current market is hardly what I
would consider ideal for momentum-based trading. For me, navigating this market
is more a function of relying on experience and feel than some very mechanical
trade setup. Guess what? I am not the only trader who does this. Many more,
thousands perhaps, are also finding themselves in the same situation. The game
has changed, and we must adapt and feel our way through. Until some comfort and
feel comes to the players in the market, the tentativeness will continue.

With that in mind, you may want to keep an eye on these stocks. They are not
meant to be HVT plays. The setups were
spotted on 30- and 60-minute charts, so you need to be patient as they play
out. Naturally, always trade in the direction of the overall market and use a
protective/trailing stop.

 

Key Technical
Numbers (futures):

S&Ps	Nasdaq
934	*1062.50*
*925-27*	1051.75
920	1048.50
915	1041
908	*1023*
903	1020
897	1014
891	1008
Â	1002
Â	995
Â	980.50

* indicates a level that is more significant.

As always, feel free to send me your comments and
questions. See you in TradersWire.

Dave