This market may provide an interesting learning experience for those using TA. Many are new to TA, and have learned in a strong market.. What we may be seeing is the strong inflow of money continues to support prices, but in place of the market's overall bullishness supporting higher prices. Once the inflow of fund from funds stop, I wonder if the TA the sophisticated investor has been seeing will then reveal itself in a falling or at least a cosolidating market? So perhaps what is to be learned here is that it is very helpful looking outside of TA for the bigger picture. In this case it is in terms of market fundamentals: the movement of large amounts of money into the market. Still I am sure TA is giving a picture that is worth taking seriously. But it comes down to market timing. It is just like a very strong rally and how this shows up in an overextended OB/OS indicator. Does this tell you when to sell? Of course not. But it is worth monitoring. This is one example where it pays to have price validate your indicators. This market requires a more discriminating look at TA. Watch other indicators like that of momentum fall in line to help paint a more convincing picture with technical analysis. For example, as far as the waning techs, I wonder to what extent the composition in the A/D line reflects this? Are there fewer techs making new highs? For that matter, are there fewer stocks making new highs?
The market moving up on a growing element of pessimistic sentiment IMO is not a bad situation. This may mean less sprightly and continued moves up, but this also can help the market to continue its move up. Perhaps this pessimistic sentiment will diminish when this market continues and hits 9000. I have seen this happen before. Also, weakening technicals can mean a consolidation rather than the significant market correction that some have been predicting. I do think 9000 will be psychologically an interesting number to watch the market respond to when it arrives there. This can tell us allot about the market sentiment.
Like I mentioned in my previous post, there is something significant that has changed with this recent rally, as though a familiar element is missing. Perhaps it is the funds themselves and how they are managing their money now. Perhaps it is the quick profit taking by allot of the players in the market. But I find it difficult to believe that the speculator is capable of changing their method of operation and actually become intelligent. Perhaps they are in other places in the markets, or many of the previous bull run are not participating in this bull leg of the market. I tend to believe that they are for the most part still with us, and perhaps they are finding the action in the small cap stocks.
I remember that before this rally started, there was strong evidence that many (speculators) were looking for a reason to move back into the market. This together with the eventual comittment of fund from the institutions like the fundies would give us another impressive bull run in the market. Not to say that this run is insignificant. But I thought this market leg would be more in character what we were seeing in the previous bull run, just more of it: speculator exhuberance and volitility. We do have from the outset participation in the small caps, and we do have the market blowing off further signs of a slowdown in earnings growth. But is this caused by the huge money inflow into the market, or by the speculators themselves? How to tell the difference?
The professionals are the intelligent ones that (have to) adapt to the current market and are capable of taking quick profits. They also can take the other side of an upcycle by the market. Then there is that program trading which I think has helped some of these day end up on the plus side in the last half an hour of the day when the day looked like it was going to close in negative terratory. Perhaps with the more visible aspect to the market defined by indices like NASDAQ and DJIA, we are seeing the more professional element in action along with the fund money.
My take on this so far. limited as it may right now, is that most of what we have been seeing is motivated by institutions and the professionals. But the breakout by the Russel 2000 to new highs indicated that the speculators are alive and well in the market place which has the potential through relative illiquidity to provide them with the breathtaking price action that they have come to expect from the market itself. I would not be surprised if the Biotechs take off. We have already been seeing action from the pharmecuticals in the past. This can lead to interest in the russian roulette game called the Biotech industry. Definitely an industry to be approached soley on the story (hype) and its supporting technicals.
Whatever the reason for the current maket, when the music stops (money inflow from funds), will there be chairs waiting for the rest of us??
Bob Graham
PS: I am going to have to break down and purchase a larger drive so I can reload my TA software. I understand 5 G drives can be had for about $300. Is this true? |
