The crowd psychology is here to stay
Before I get started on this week’s analysis, I want to alert
you to an op-ed I did that appeared last week in the Chicago Tribune about the
growing crisis regarding North Korea: The Op-Ed begins as follows:
“North Korea is a significant threat to global economic and
political security–even without nuclear weapons. Neither the U.S. nor UN
sanctions can bring North Korea to heel–only China can.â€
CLICK HERE to read the rest of the article in the online Tribune — the link
was still active as of October 14. The article provides a broader perspective on
a serious issue that is constantly roiling the world financial markets as well
worth the read.
As for the stock market, here’s a quick snapshot from Market
Edge that is consistent with my current short term bullish posture:
“After a sluggish start early in the week, stocks turned up on
Thursday as both the DJIA and S&P 500 posted new highs for the year. The DJIA
continued on its march to 12000 as it recorded record highs on Tuesday, Thursday
and again on Friday (DJIA — 11960.51). The rally was fueled by a sharp decline
in oil prices and some decent earnings reports. Friday’s retail sales report
coupled with a reversal in crude prices failed to slow the rally as most of the
major averages managed to post gains for the period. For the week, the DJIA
gained 110 points (+0.93%) and ended the period at 11960.
The NASDAQ continued on a roll as it is now up over 16% from
it’s 07/21/06 low, 2020.39. … Year-to-date, the Dow is up 11.6% while the NASDAQ
has gained 6.9%. Trading the DJIA (DIA) using a buy/hold strategy has produced a
gain of 1243 points (+11.6%) while utilizing the Market Edge long/short approach
would have generated a loss of 600 points (-5.6%). “
I offer this quote because it reiterates a point I made
earlier that the technicians are getting slaughtered this year — as evidenced by
the failure of Market Edge to even match the performance of the indices. One of
the problems here is that everyone is watching the same technical indicators now
and acting on them, which creates a crowd-like psychology that it has become
profitable to fade.
As for the coming week, we are now in the classic Oct-Nov.
silly bullish season where a lot of money managers bet the farm in an attempt to
have a good year. With some much money on the long side, the rally is likely to
continue.
This Week’s Market Movers
There’s not a lot of economic reports of import this week but
the two that have clear market moving potential are the producer and consumer
price indices, flying on Tuesday and Wednesday, respectively. I don’t really
expect any inflationary jolts here to wake of the bears, but my short run trader
audience needs to pay these reports appropriate heed.
Navarro’s Portfolio Shorts and Longs
I continue to keep my eye on one of Andrew Vaino’s original
picks, Diversa, the biofuels play.
(
DVSA |
Quote |
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PowerRating) has made a strong comeback from
the sixes and is approaching $10. My sense is that this could be a stock that
once it breaks the $10 barrier might have a pretty good run. The big caution
would be a collapse in oil prices. Otherwise Bon chance!
Peter Navarro is a business professor at the
University of California and the author of the best-selling investment book
“If It’s Raining in Brazil, Buy Starbucks†and the business shelf bestseller
The Well-Timed Strategy.†His latest book is “The
Coming China Wars.â€