The sell off in the techs and NASDAQ itself should not of come as a surprise. I expected the techs to bounce before a sell off. I did not expect this quick and deep of a sell off so soon. But the signs have been there for some time now that this could happen. Money has been continuing to leave the tech market in phases, most significantly the fund monies and the very importantly even the *speculative* monies. This has been a pattern for some time now but has taken on a much more aggressive form for lets say over two weeks now. This has been helping the DJIA to new highs at the disadvantage of the NASDAQ. The market was getting pretty thin in NASDAQ before the last two day rotation of monies out. Now look at what you are left with today. The holdouts are now starting to leave the market.
The last two rotations of monies out of NASDAQ and into the market in part measured by the DJIA had its toll on key stocks in that market, particularly the techs including the Internets. Is it no surprise that the DJIA is continuing to record heights while the NASDAQ has been dropping? This market has been a bifurcated one for some time now as we have witnessed today in dramatic fashion. Do not let the unusual high past volatility of the secondary issues in that market with stocks moving 10 or more points in one day confuse you into thinking you were playing in a healthy bull market. You were actually playing in a very, very risky market that could shift on you and leave you stranded very quickly as you have witnessed recently. I think I tried to warn you of this recently.
It is wise not only to observe and take advantage of the volatility you have been experiencing, but also to understand where it is coming from. The uncharacteristic volatility in a market that has not been healthy for some time should of been an alert to look deeper for the cause, to take a step back to see where the money is going for instance. This would of given you much cause for concern with the NASDAQ market.
This last rotation of monies is continuing to broaden the rally in the market. Large amounts of money is continuing to leave momentum picks and move into value picks. I want to mention that this is what GroundZero had expected to happen. It made sense ot me, but I did not believe it until I saw it. Such is the possibility of bifurcated markets.
I hope you are not watching AOL going down and relying on a bounce to get you out of a hole? Not cutting losses quickly as a discaplined trader should will end you up in allot of trouble sooner or later that you will have to take your losses on. Averaging down is just as bad. At least wait for the market to bottom. The market has been changing for some time now away from the techs which has changed the character of the markets, particularly the one you play in, the NASDAQ.
My concern last Friday was the S&P 500 moving up while monies from the NASDAQ market have been rotating into stocks that only benefit the DJIA index. This broadening I have been seeing now is a good sign. However, I do not like the way the DJIA and S&P 500 sold off so quickly today on the heels of a very steep intraday rise. I think this means something for the index that has been leading the market up.
Bob Graham
**Special Note**
Right now there is a popular thread lead by a trader that today is exhibiting an excellent example of a trader that cannot handle losses, who is hooked to a position and a personal bias in the market. When market moved down quickly filling a gap up an then some as DJIA strongly moved up today, this should of been a strong warning signal to the trader following a pattern of continuing weakness in the NASDAQ market. Then on the rebound, trader should of sold positions instead of bought. Positions were then getting stopped out but trader continued to buy in the market hoping for a rally.
Here is a very important rule to learn from as a trader: whenever multiple positions immediately go against you, this should be a very loud siren in the ear that something is very wrong and immediately go flat until you have figured out what is wrong. And what is this comment about the NASDAQ market being "oversold" and "ready" for a rally? Heck, it is even more oversold now, isn't it? As time continues, it is becoming even a better "bargain". Meanwhile for the trader a pattern of confidence turned into faith turned into hope.
Now the trader is left justifying themselves by coming up with picks from their rather large list that are still "bucking" the trend. Those picks in reflection after the fact the trader finds to be in the NYSE, which should be no surprise. Very good at analyzing earnings plays, but IMO a poor trader that is familiar with having a crash pillow under the butt that these earnings plays can give you at times in the right kind of market. This market just is not it!
Enough said. |
