Posts filed under “Trading”

Bad Moon Arising

Even as the short term firms up, dark portends persist. Today, we review the interim positives – and longer term negatives – as they apply to US equity markets.

The positives are mostly obvious: The line in the sand was drawn on Friday’s low. I expect that to be a very significant number going forward. Prior to Friday, markets struggled to make any forward progress. We saw 6 consecutive down days for the Nasdaq, (8 of 11 red days); the SPX was hardly better, with 6 of 8 days down. Are Buyers running low on fuel, or are participants simply losing interest?

The bounce off of that Friday low has some interesting short term positive attributes. The sharp decline in the put/call ratio, and an increase in the Bearish advisors to over 31% are two signs that too much bearishness had permeated the crowd. Contrarians know these indicators reveal when a sell off creates sentiment that is too negative. That sets up conditions for a needed relief rally – which began Friday.

Further, the rally in US Bonds on the weak retail sales data lend some support to a market rumor circulating that the Fed was ONE and DONE. This helped send the S&P500 to new highs, levels not seen since March 2001. Index highs tend to feed upon themselves. We note also that leadership, which has been sorely lacking in this market, has also appeared: The financials rallied strongly on the back of Goldman Sachs blowout earnings (Lehman, too), with the Amex broker Dealer index up big versus the Bank index.

The negatives involve the usual end of cycle data: The increasingly small number of 52week highs, the weak market breadth, new 52 week lows rising even as markets rally. With fewer stocks participating in the upside, we become overly reliant on shorter term issues like Option expiry. Transports look extended while the Utility average has broken its 50 day moving average. The short interest ratio for the Nasdaq-100 – typically a source of fuel for rallies – is at its lowest level in 3 years. Also of note: next week begins the Q2 guidance/pre-announcement period. Macro issues – especially housing related – abound.

Given how tired the market looks, I suspect that this may be the last run towards our upside target numbers before the old gal gets put out to pasture. There is a very high probability of the indices breaking out to new highs. A failure, however, is potentially very negative. Look for the Dow to make a run at 11,350, the S&P500 to try to reach 1,335, (maybe even 1,350). The Nasdaq 100 could tag 1,795 theoretically. What the hell – let’s just call it 1,800.

I expect this lunge to reach new highs, then fail. We have discussed the many signals prior, while the market has ignored them. We now enter the period where it will become increasingly difficult to disregard these concerns. 

I see trouble on the way.

Category: Economy, Investing, Markets, Psychology, Technical Analysis, Trading

Qs Short Interest

Category: Markets, Technical Analysis, Trading

Dennis Gartman’s Rules of Trading

Category: Investing, Markets, Rules, Trading

IBM, Telecom iShares

Category: Trading

Stopped Out

Category: Trading

Chart of the Week: Risk Appetite

Category: Investing, Psychology, Trading

Toe in the Water

Category: Trading

New Column up at Real Money (03/03/06)

Category: Trading

Why the Short Term Upside Bias?

Category: Investing, Technical Analysis, Trading

The Backward Business of Short Selling

If you haven’t already, I strongly admonish you to go read Jesse Eisinger’s column today:

It’s a Tough Job, So Why Do They Do It?  The Backward Business of Short Selling

Here’s the money quote:

"The shorting life is nasty and brutish. It’s a wonder anyone does
it at all.

Shorts make a bet that a stock will sink, and nobody else wants
that: Not company executives, employees, investment banks nor most investors.
That’s why most manipulation is on the other side; fewer people object when
share prices are being pumped up. For most on Wall Street, the debate is whether
shorts are anti-American or merely un-American.

Yet in all the paranoia about evil short-sellers badmouthing
companies, what is lost is how agonizingly difficult their business is. They
borrow stock and sell it, hoping to replace the borrowed shares with cheaper
ones bought later so they can pocket the price difference as profit. It’s a
chronologically backward version of the typical long trade: sell high and then
buy low."

Go forth and read . . .



It’s a Tough Job, So Why Do They Do It?
The Backward Business of Short

Jesse Eisinger
WSJ, March 1, 2006; Page C1


UPDATE March 2, 2006 10:32am: 

See below for more text


Read More

Category: Data Analysis, Financial Press, Trading