It was a very quiet day of trading and until the very last hour appeared to be the lowest volume day the entire year. However, a pickup in action the past hour prevented that from happening. But instead of a rush to buy stocks there was a small little rush to sell. That helped take the indexes off their highs and helped leave them basically flat for the day with most indexes up or down between up .1% and down .2%. The biggest moving index was the SP 600 with a walloping .6% rally.
Leading stocks, in the form of the IBD 100 fell .4% but many stocks that make up this index look great, pulled back on lower volume, or actually moved higher on higher volume. Some of the bright spots that I am not long (no free picks :)) include ACL SINA STR SOHU CMI NTES and ARD. Some of the dark spots were the chemical-fertilizer stocks that are in the middle of ANOTHER possible topping process. This topping looks so much more real this time as not only is TNH in a climax run but POT MOS CF and AGU on weekly charts going back to 2002 show stocks that have gone from a sustained slight uptrend, to a strong uptrend, to an exponential uptrend, to a powerful exponential uptrend, to a parabolic uptrend, to a climatic possible top this month. With these stocks selling off in a climatic topping fashion and with so many tech, retail, bank, and other lagging stocks looking good, it does appear that this is a massive rotation. I think that is a very good thing, if not now, for the future.
The mixed results came on lower volume as volume contracted around 10% on both indexes as most investors are in a holding pattern waiting for the Fed to come out with their announcement. Even though I do not care about this really, the truth is the overall trend is very important and that trend could be coming to an end as the Fed is expected to lower rates one final time as inflation is finally starting to worry them more than economic weakness. This move might be taken as the signal for investors to get back to work.
This is all wishful thinking. But my hope is that by signaling that they are done cutting, the big elephants (mutual, pension, trust funds) will start to put money back to work and will go out looking for money knowing that they will not be able to get a better deal on their financing down the road. But, if you are in that wishful thinking cap you have to be cautious when you here that Warren Buffett thinks that this will be a really bad recession that will last longer and be deeper than we think. I could see that happening also, so I am not so sure I am even confident with my wishful thinking best case scenario.
What I am hoping for is for the Fed to change the wording in their announcement that would somehow signal to investors that the rate cuts are finally over and now the Fed will be waiting for the next move which historically, after this many cuts, is higher. That means the next time the Fed will raise rates, they will know that the economy is strong and that they will need to cool it off.
All I know is that I see a LOT of mutual fund cash just piling up in some great mutual funds that have some experienced fund managers with excellent long-term track records. Those guys are going to eventually need to put that money back to work and you can bet after going this long without a TON of volume on the indexes that in the future we are not going to be able to miss these elephants as they leave their tracks all over this market. Volume has only been above average two time since 3/20 on the Nasdaq, with one of those days of above average volume coming on a triple-witching session (and even then it was only BARELY above average), and the NYSE is still waiting to see a day of above average volume since that date. It came close once, but close is not final.
This is proof that the smart money is not involved in this market and what you are all seeing is a low volume rally that is naturally lifting stock due to the fact that the market has a natural tendency to rally on low volume. This is because investors are very impatient and when they do not see rewards immediately they go out and sell stocks. The dumb retail crowd is notorious for making this bad decision. On top of this slow selling into strong bidders, many weak traders start shorting stocks which completely goes against the market axiom "never short a dull market." This short selling in a low volume market causes stocks to slowly naturally lift, which then hits the stops of the dumb money, which then raises the stocks as they are forced to cover, that covering then sends stocks higher till they break out, that then draws in more of the retail crowd who buys breakouts, that buying then leads to more short covering, and more and more amateurs continue to repeat this process until they are either all wiped out or they all turn bullish. Once this happens, then the stock can finally come down. With the NYSE short interest ratio at 11.81 I don't think we have to worry about the market falling any time too soon as the lower volume rally will continue to inflict pain on these amateur traders.
Not only is the NYSE short-interest ratio bullish for longs with it being at YET ANOTHER all-time high--it seems like it is hitting a new high EVERY day--but the put/call ratio remains high at .87. This is not extremely high which would be around 1.6 but anything over 1 is extreme. Still though, the fact the put/call can not fall below .80 is proof that every tick higher brings in more and more short sellers that are buying puts thinking the market will fall. As long as market players are buying just as many puts as calls (which is historically bullish for stocks) and shorting stocks as stocks rise, volume or no volume, I will not hesitate going long great stocks forming solid chart patterns that show excellent fundamental characteristics. I have already started to do that as this rally moves on but I am still waiting to get heavily invested as I refuse to load-up on stocks without the big boys/smart money participating.
In M&A news I was pleasantly surprised to see WWY get bought out by Mars Candy which Warren Buffett financed. What I found interesting is that if you just would have bought WWY in 1984 and held it all the way till this announcement, you would have found yourself a big slow and steady monster stock as the stock has rallied over 6,800% since then including a small dividend. Not bad at all and why I prefer holding stocks over intraday trading. However, I still think intraday trading (due to the inability to nail HUGE MONSTER STOCKS) and long-term investing (Enron, Worldcom, Adelphia, .com's) is very risky and advise against it. I believe active investing which involves holding most stocks between 6 months and 18 months is the best way to make a fortune in the stock market.
I do not think that we can expect too much action from the market before the Fed actually makes their announcement. So I would expect for the market to give us more of what we just saw today. After the Fed, I am sure there will be more action. But for now, it is best to just take it easy, stick with what is working, and leave the riff-raff alone. Enjoy the lull, there will be a lot of fireworks, I assume, after the Fed is done doing that thing they do to annoy us so well.
There is yet again another supposed to be GIANT south swell hitting the south and west shores of Maui. This is my backyard and anytime it can actually get overhead and possibilities for big drops and barrels are there, I would rather be there than watching a dead market. So I might be checking out early tomorrow, to give the platinum members a heads up. But if the market is doing something really amazing to the bull or bear side, I will make an effort to stick around to the closing bell. Until then...SURF'S UP AGAIN! and until this market gets more exciting via more volume in the overall market or we get more HOT charts like the two that subscribers know I am talking about I will continue to focus on my surfing which brings me much greater joy than a chart ever will....well I have to admit, pretty max green BOP filled charts like those you see in my 'past big winners' do make me very happy to. There just is no feeling to getting a good wave and carving it up like it was a pumpkin. I still have yet to feel ANYTHING (besides LOVE, OF COURSE!!!!) that feels as good as a nice long tube ride tucked deep in the barrel (not that I am too familiar with those with my donkey surfing and crap Maui waves).
Aloha and I will see you in the chat room, unless I am out surfing and then you can find me at either Olowalu, Breakwall, or Guardrails if it is too crowded at the two best lower west side breaks. Well, the best is Lahaina Harbor but that is for the groms that will be going pro. I have no business over there, lucky for all of you. :( ALOOOOHA!!!
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