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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 652.56

-1.5%

Nov 20 4:00 PM EST

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To: HairBall who wrote (9998)	4/6/1999 3:42:00 PM
From: Robert Graham	Read Replies (3) of 99985

The quotes from briefing.com I left intact. I have not been closely following the market reaction to earnings warnings and reports, but I assume they are referring to the propensity of the techs to sell off and the pattern of earning warnings that we witnessed in the past. When there are a pattern of earnings warnings established, I imagine the best thing to do would be to sell the rumor and buy the news. Smart companies would have no trouble meeting the new downgraded earnings target. Comments welcome to correct any inaccuracy here. I think there is a difference between a trader keeping themselves from being caught up in the market's sentiment and measuring the market sentiment to base trades on. I find market sentiment can override short term technicals in both directions, up and down movements. I have found this very true in particular phases of the market. Just to promote further discussion, I will say that overall I think the market goes through basically three phases in a bull run. The first is value oriented based on the fundamentals of companies. Once the market has on the average overpriced stocks valued in this fashion, then I find the fundamentals become less and less relevant, or in other words the fundamentals are scaled to have a longer term effect on the market. The rubber band between the price of the stock and the underlying fundamentals becomes more stretched. It is interesting to see that a form of the fundamentals keeps in vogue like that of earnings surprises and revenue growth (what earnings growth for some of these companies like AMZN right now??). Here is when an approach that is more completely technical pays off. The next phase is the sentiment driven market. This is when your technicals say PULLBACK NOW and the market continues to go WHOOSH on upward. So much for most short term technicals. In this case, the technicals are more used for more purely artificial guidelines or measures to delimit times for personal buying and selling that any timely indication of market movement in terms of the buying and selling by the public. And these guidelines need to continue to be adjusted inline with market enthusiasm and type of stock that is being traded. Lets say compare MSFT to DELL to YHOO for examples. In this phase of the market, instead of focusing on short term technicals even though I still use them, I find price action and sentiment measures very helpful here. Still it pays to keep looking at the broader technical picture particularly during the sell offs that can follow this type of enthusiasm. Note that above I am talking about gauging market activity to see where it has the likelihood to go in the near future. Technicals used for a built in tested system is another thing. Once a system has been sufficiently proven, I think it is always best to follow the system even if technically based during a sentiment driven market. Just some thoughts I have been formulating. But I am no expert. Always open to suggestions. Bob Graham

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