For what its worth, I agree with this analysis:
"It seems to me that the odds favor a drop in prices next
week, followed by a failed attempt to resume this week's
rally. This view is largely based upon my reading of the
McClellan Oscillator's pattern. This indicator
uses the difference between advancing and declining issues
on the NYSE. My guess is also based upon the failure of
new highs to continue relative strength again today. After
a week like this, we're tempted to conclude that anyone's
guess is as good as another's. The picture is very murky.
And you can be sure you're not the only one looking around
for clarification of the impossible."
For my own thoughts:
The caveat I see is that even the daytraders, and I'm talking about the experienced ones, are not being as cautious as I have seen them in the past, say two or three years ago. Even though the 'buy-on-dip' process is working now, and fortunately, those using stop loss and judicious risk management practices are going to be okay. Sue is proably right that it will go on for a bit longer than most of the wags project, for a lot of reasons.
But when you look at the best of the internet stocks fundamentally, and discover that even the biggest AOL, only comes in about 535 on the Fortune 1000, you have to question the motivation. As long as one can buy and sell the stock and make money, it may be immaterial that the intrinsic value of the company is poor. But at some point, whether that is some atmospheric pricing, or an increase in the float, or a year or two after the inexperienced ones figure out that they don't "always come back" to where they bought it, they will start selling.
The group I am with bought AOL at 91. I sold it at 159 and rebought at 117 last week. It closed at 148, but that wasn't high enough to break the trendline connecting the highs since the last reversal. Monday we will look to see if starts dropping to the point we will take profit again, or hold if it stays stable or goes up. If you are doing that with a couple of large blocks your sensitivity has to include something more than the faith of a few million daytraders. It has to include a rigorous risk management plan and a bit more general market analysis. And if you are only doing it with 100 shares, you should be just as cautious.
I pay attention to the number of trades and volume of the specific stocks, but now my concerns are more to the overall strength or weakness of the market beyond the capitalization-weighted indices. Valuations are rotting away beneath the surface here. Money is changing hands, and thats great while it happens. But unless someone ever comes up for a good reason why the P/E of YHOO is 1,500 the concern by financial institutions and others who see the potential risk is going to persist. And for good reason.
Develop a trading method that works and use a rigorous stop loss program. Preserve your capital. There will always be another stock to make money on tomorrow. Don't get greedy or overconfident that it will always recover. Take a step back and look at the overall market at least once or twice a week, and I mean all sector indices, not just the SPX, OEX or nearly worthless DOW. Make money when and how you can for now, but don't ignore the gang crying 'wolf'. Because even accidentally they might be right one day.
lastshadow |
