No doubt that the month of April and the first two weeks of May 2001 have been challenging to trade and/or position trade.
The extreme volatile intra-day price swales and large market-opening gaps have mutated the markets into a "Perfect Storm". A possible reason for this happening is the large number of billion dollar funds. These funds are now forced to move in and out of the market on a intra-day basis in order to balance the equilibrium of their asset mixes which are distorted by the wide spreads of in-balance of orders on market-opening.
The safest method to use when sailing through a turbulent "Perfect Storm" environment is to have a clear accurate short-term prospect view of the markets direction and time tables, and to quickly mange the liquidity levels to prevent the least amount of rock-and-roll.
Big money has been leaving the equity markets and has been buying US Treasury Bond futures, since April 30, 2001. This indicts that supply to fuel the equity markets is diminishing and addition supply into the market is increasing. This indictor is a reasonably accurate two-week lagging timing tool to identify the future turning point of equity markets. Therefore, using April 30, 2001 as our starting point, we place the possible turning point of the decline to be around May 14, 2001 (+/- 2 days). The confirmation of the micro rally breaking point is 1975 on the NASDAQ.
In closing, this tech rally can be broken down by three types of buyers
1. insiders and pro traders; early April
2. short covering, mid to late April
3. small investors, late April and until now
The FED can add lighter fuel to continue the flame, briefly, but it takes solid wood to keep it going.
Solid wood should be found around NASDAQ 75O or so
To show you how strange this past 5 weeks has become, very senior partners around me have now convinced themselves that this rally is real. I'm short this market, so my view is slanted as I write.
Im guessing at this point, but the downward thrust this time will be fast and hard, not slow and easy as in the past. I say this as an observation of the VIX . It never dropped to a level that justified the rally. And it seems by its consolidation, when it pops to 31-32, it might be very quick |
