I have not taken a good look at the technicals of the market lately.
I do have V2.0 of Quotes-Plus I have been wanting to install...so
watch out! ;)
I am sure many think bonds also have lead the market for a couple years.
And this is true on that scale of time. But in a more microscopic view
of time, there have been periods of marked divergence between the
bonds and stock market for obvious reasons. Just the same, when
money was leaving the NASDAQ and moving into the DJIA and S&P 500,
the NASDAQ was diverging from the rest of the market for the same
reasons. Remember several significant days of selloff by the NASDAQ
while the rest of the market remained comparatively immune?
When the NASDAQ leads, it leads on an intraday basis. When you see
one or more days lag between the two, this is very unusual and indicates
something has changed, particularly if there develops a pattern of this.
This is what happened when money moved to defensive positions. This
divergence was marked and IMO indistputable at that time. Now the market
may be changing back the other way. But just like the bond market, when
money moves back from bonds to stock, this also creates a decoupling
of the two. I think we have seen the same between the DJIA just sitting
there and the NASDAQ in a strong rally. This is normal for that type of
market. It is all in the flow of money.
In this very volatile market, I would play any rally very carefully especially at
its beginning. Remember how we have already rallied up beyond 9000 with some
strength to then have the rally fizzle and flop? The breakdown past 8750 for a
couple days may indicate there is something in the works as far as a retest of
lows if not a continuation of the market adjustment into a correction. Any
breakdown past a well-established support needs to be taken very seriously.
And in this volatile and evolving market, the effects may actually come at a later
time. Who would of thought below 8600 was possible until just before it happened?
I think if there was not so much liquidity being introduced into the market,
we would be seeing entirely different market results. So that is why I think
it is important to watch money flows into mutual funds and the placement of
money by mutual funds besides the technicals. This has allowed me to see
what was unfolding in the market when the technicals of the market were
in flux and confusing to many experienced market technicians, even John
Murphy. That is not to say that I am more experienced than John. I have
allot od respect for this technician who is *much* more experienced that I
am. It is just that I think there are limitations in the purely technical approach
to the market. But the technicals have the biggest part of the picture when it
comes to trading. This is particularly true when the market is not in transition.
John does make up for this in part through his intermarket analysis. Martin Pring
takes his analysis to new levels that do in part consider the more fundamental
aspects of the market. Martin successfully called that there would be no major
market correction last year when John Murphy was insisting that the correction
was not over with.
I think in this market it all comes down to market liquidity. The funds are
in control of that for the near term, and ultimately the public's participation
in the funds will determine the outcome of the market. I think this is important
to monitor along with the technicals of the market. Liquidity is the fuel and
the technicals indicate the result of the combustion. It is like having the
speedometer, RPM gauge, oil pressure, and other intruments that provide
valuable information to its user. When the fuel disappears (public money)
or the application of the fuel by the throttle abates (mutual funds pulling
money out of the market), the technicals will respond accordingly. In this
picture, the funds are in the driver's seat and we only have access to the
dashboard instrumentation.
I do think we basically agree in concept even through some of the specifics
may be different. What do you think? Also I did overplay the fundamentals
in my post. I just think that when the market is giving conflicting signals,
a look at the very big picture was worthwile which the fundamentals are a
part of. But now the market looks a bit more well-defined.
Bob Graham |
