Ray,
You make some excellent points, sir. Very thought provoking, but that's not a surprise to me since we've corresponded for quite a while now.
I must admit I have ambivalent thoughts and feelings, in that I find little to quarrel with in what you write on a fundamental and macroeconomic level. But---let's face it, folks---being your basic, middle-of-the-road, garden variety quarrelsome guy, I'll find somethin' <gggg>
<< I am looking for triggers to the countertrend rally you see via your TA. >>
I am increasingly skeptical that there are any reliable, repetitive, identifiable "triggers" to account for mass buying and selling behavior of the size necessary to significantly move stocks of any appreciable float, let alone sectors and indices. Most of what traditional wisdom identifies as "triggers" amounts largely to post hoc reasoning. For example, what might transpire going forward in the markets and what might be the "explanations," in the light of Friday's PPI, and news items such as these:
news.bbc.co.uk
dailynews.yahoo.com
biz.yahoo.com
My answer:
1. Shrugging off Friday's inflation woes as a momentary statistical anomaly, traders avidly snapped up beaten down tech stocks today, as a widespread rally gathered steam in big volume trading today on the Nasdaq. Interviewing traders on the floors of the exchanges, Maria Bartoromo gushed that investors had been greatly heartened by the bullish comments issued over the weekend by Abby Joseph Cohen, influential Wall Street investment strategist for Goldman Sachs. Traders also shrugged off the ominous warnings issued by Cisco CEO John Chambers as self-serving propaganda, even bidding up the shares of Chambers' own company. Traders were also upbeat about the effects of the Fed's aggressive easing stance, and the positive effects likely to accrue from the proposed tax cuts by the new Bush administration on the economy.
Or,
2. In heavy volume trading affecting most of the major indices, the Nasdaq lost major ground again today, trading through key technical support levels for the first time. Investors, fearful after Friday's ominous inflation signals, fled the once high-flying issues for safer harbors today, as the blue chip stocks gained ground on big volume, and the treasury and bond markets rallied impressively. Interviewing traders on the floor of the exchange, Maria Bartoromo excitedly warned that traders had shrugged off the bullish commentary issued by Abby Joseph Cohen, the influential Goldman Sachs' chief investment strategist and recognized Wall Street guru. Instead, traders were stunned by the pessimistic forward comments issued by tech bellwether Cisco Systems' CEO, John Chambers, and bid down the stock in over twice normal volume. Traders were further unnerved with the forward prospects of continued bad inflation figures, and discounted the positive effects of proposed tax cuts and central bank rate easings as being too little, too late to be effective.
My point, of course, is that whatever happens, a "reason" and a "trigger" can always be found---post hoc. So, I don't view a detailed analysis of the possibilities and probabilities associated with the various scenarios as particularly productive. The thing I'm most concerned with---regardless of any supposed "reasons"---is what is the big money doing? What is the buying pressure relative to selling pressure, and how is this changing?
I must disagree with you about the dot.bombers and their stock options being a significant force to be reckoned with. Since many, if not most of the sector has already lost 90% and more of its value over the giddy highs of last Spring, I just don't see that there is any significant reserve of selling pressure here sufficient to move an entire index which is not dominated by that sector. The dot.bombers, IMHO, have been all but marginalized and trivialized as a sector to be reckoned with, and are now a comparatively minor determinant of the overall index. They've already been taken out and shot, and shooting them again won't get them much deader.
I'd have to agree that nobody in their right mind would expect a 50 bp surprise party from AG at this point. But, if there are any indications going forward that Friday's PPI was a statistical outlier, then the very real possibility that a 50 bp cut will be discounted by the market becomes a distinct possibility, if not probability. And, you can bet there will be further self-serving comments from Chambers and his ilk to push AG towards this quickly.
<< I fully expect that we may have a lull in the California energy crisis, as the weather moderates. >>
LOL!! Ray, I'm beginning to wonder if I've been transplanted to yer neck of the woods. We had about 6 feet of snow in the local mountains last week, and the streets of LA were rivers! And it's raining as I write this......gonna start lining up the animals two by two....
But, you're right. The situation in California will only worsen. And the very powers that be who were largely responsible for the energy rat's nest have---are you ready for this?---decided to buy the damn grid (never mind that's it is hopelessly inadequate, and outdated, and can never serve the real power needs going forward)---and go into the electric utility business! Yes, our leaders do the work of three men: Larry, Moe, and Curly Joe. Great bid/ask, too: anywhere from $3 billion to $11 billion. Bet ya dollars to donuts the $11 billion turns out to be low ball. But hey, it's only taxpayer money, there's plenty more where that came from. They'll pay. They always pay. But it is not, our leaders assure us, a bailout. Rather, a capital infusion. It is really neither. A bailout and a capital infusion combined would be cheaper than this will ever turn out to be.
Now there's a lucrative business fer ya: the electric power business. Why, it's so lucrative, that SCE and PGE are a hair away from Chapter 11 and have already defaulted. And Davis et al have the gall to assert that they are going to make it a profitable business! Indeed. Why, everybody knows that if you have a lose-lose business plan, all ya gotta do is have the government run things, and Presto! Change-o! A profitable Phoenix will inevitably rise from the ashes!
But, enough ranting (ya never shoulda put a quarter in me)....... You're right: things will get worse in NoEnergyVille, and can only spread like crabgrass. And that certainly bodes poorly for the economy going forward.
Back to the point: the triggers for the countertrend rally don't necessarily have to have any basis in economic reality in the short to medium term. Didn't we learn that all too well last Spring? Isn't that the moral of the dot.bomb story?
So, back to the technicals and internals, i.e., what might be happening, as opposed to why.
I've done a lot of thinking and analyzing over the weekend, and consulted with some trusted souls here and elsewhere. This is the best we can come up with---win, lose or draw:
=========================================================
The $COMPX internals are showing definite signs of reversal, but it is not unanimous, and not overhelming at this point. The $COMPX TRIN [$TRINQ] chart, which I consider to be very important, now shows a reversal in money flow strongly consistent with a reversal in formation here. This indicator is a preceding indicator, and is very powerful, but has not yet been confirmed as I would like. So, I would place somewhat less reliance on the signal, though it is clear. I suspect the other internals will soon follow suit, but this has not yet happened.
A composite $COMPX internal indicator that I developed myself also has not signaled either, however this indicator is not very sensitive, though it is extremely specific. In the time period tested, it has not had one false signal, but has failed to signal at times.
I'd be most interested to see the charting you refer to, showing continued deterioration in block flow. My analysis of the $TRINQ is not consistent with this, instead showing a strong shift in balance from volume in declining issues to volume in advancing issues, and there has been a very bullish crossover of the 5 EMA and 8 SMA through the 21 and 55 SMAs of the $TRINQ, and all are just now either sharply upsloping or beginning to hook upwards [to be precise here, the inverse of the $TRINQ was plotted; as you probably are aware, the $TRIN moves counter to subsequent price movement]. But again, I do not yet see enough consensus in the internal indicators to make this a strongly reliable conclusion.
The sentiment indicators also are showing a mixed picture. One of the ones I consider to be the most important is the Consensus Index of Bullish Market Opinion, published weekly by Consensus, Inc. This is a reflection of the relative bullishness/bearishness of futures traders, generally considered to be extremely saavy traders, and ahead of the curve. The next one will be published 2/21, from the poll taken Friday. I anticipate that this will show substantially increased bullishness on the part of futures traders, but for now, the last poll did not show this. So, we'll have to wait and see on that one. The CBOE Equity put/call, which had been recently trending bullishly, has now turned back, but I don't think this is a strong indicator at the moment because it is still in the midrange. The put/call becomes a stronger and stronger indicator as it approaches relative extremes, where the signal becomes increasingly contrarian.
As for the $COMPX chart, there are two long-term (25 year and 12 year monthly) charts that show essentially the same thing. Here's the 12 year monthly chart showing the most recent months, and the impending test of critical trendline support:
angelfire.com
This trendline has not seen a single monthly close below it since 11/87, and only once was the line breached intramonth very briefly.
Here's the 25 year chart, showing the $COMPX breaking out of a lower channel in 1998, and since establishing a new channel:
home.austin.rr.com
This chart shows the critical convergence of long-term and short-term (1 month) chart support:
angelfire.com
Bottom line from the charts, in our opinion (and we are in agreement here, FWIW):
1. The current short-term technical support level is 2372. There are indications of strengthening technicals on both the daily and intraday $COMPX charts, suggesting imminent reversal to the upside is likely. However, this probably be preceded by either a gap down and/or initial selling into the open.
2. 10-year trendline support is now 2376; short term chart support is 2372. Therefore, we anticipate that the likely zone in which reversal will occur is between these two, i.e. 2372-2376. However, there is only a very, very narrow difference between short term and long term support---4 points!. This makes me very nervous.
3. If there is no reversal here, and the $COMPX falls below 2372, then the following chart shows next short-term support to be 2334-2340:
angelfire.com
4. If this support fails, I'm going to cash RIGHT NOW. There is still the last critical 12 year support at 2314, but if the $COMPX moves through the above support levels with any kind of momentum, that makes the likelihood of a failure at the last level of 2314 increasingly likely. At that point, I'll be looking for shorts and puts, but will be in cash.
So, the watchword going forward I'd say is: watch closely. This next week will be pivotal, IMHO.
I must credit the inimitable Vendit for some of the charts above, and for our discussions about same. Dealer I believe was the source of one of the charts also, and Paul Shread as well.
Anyway, as you've come to expect by now I'm sure, this was long-winded, but I hope you find it of some value. And, I guess this goes without saying, but I better say it anyway: all of the above is
JMVHO........
T |
