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Strategies & Market Trends : Stock Attack -- A Complete Analysis

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To: Darth Trader who wrote (13096)	7/25/1998 1:44:00 PM
From: Robert Graham	Read Replies (1) of 42787

You make a very good point about no buyers stepping in right after there was unusually high positive sentiment. I want to note that the sentiment we were seeing was the speculative kind of positive sentiment where blind exuberance was in evidence. This is the most dangerous and excessive form of positive sentiment. On many charts in the high tech sector I saw stocks go straight up without any pullback. This is a dangerous technical condition that IMO can only be followed by tape readers or a system proven to handle this type of price action. Because when the sell off starts, it can go through the floor. When multiple charts had this price formation, this was evidence of that blind irrational exuberance that can quickly reverse. Stock cannot continue up at that angle of ascent. This is a fundamental technical principle. Now we have buyers not stepping in with the same enthusiasm. I think what we saw Friday may have been more a lack of selling rather than buyers stepping in. There were those who were anticipating a bounce from an oversold condition. Also on Friday the market tends to go in the opposite direction form the trend established earlier in the week. So I though that the market would reverse which it did. This provides us an opportunity to measure the buying interest in the market to see how far up the market can go and how much of its gains it can retain by the close of the day. Also we can see how the market handles any nearby resistance levels. We saw what happened. Market went up by 50, dropped 100 to about negative 50, and then ended up about 35 I think, and closed just a few points up. Where is the buying interest?? Where is the enthusiasm?? People are being unusually cautious right after record breaking exuberance. Apparently toward the latter part of the day the volume dried up and this is when the market moved back up and was able to close just above yesterday's close. I do not see this a a bottom. I want to note here that a look at the charts would not of supported a strong reversal here anyway, that there was evidence of more selling before a good market bottom can be made. Monday should give us further evidence as to wether a bottom is forming in the market or not. I think based on Friday's price action there may be some traders who expect a bottom has been made and they may jump in and go long. Others will wait for that bottom to be made before entering the market. This may take some time since I think there can be additional selling before the market can form a bottom and reverse. I do not see that a bottom has formed yet to the market sell off we have experienced. I see on some charts there are stocks that are ready to bounce. This may take part in a move up by the market on Monday. However, until a bottom has been established, I would question a move up by the market on that day. Bob Graham

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