Follow the trend as they say:VIX,liquidity,Dell,CSCO etc etc
J.T. wrote.."Is it possible, therefore, that if that 'ascending lower trendline' since 1995 gets taken out that this would be quite significant, and hence could lead to a potential break-out or melt-up in the market?"
If the lower ascending trendline of the VIX going back actually to 1990 is broken, then that will be a first.
Could it be broken? Who knows? I am just looking at the trend. Could it be broken in such a situation which is clearly not bullish, maybe just less bearish for the moment?
I do not know. Anything is possible. I am looking at the trend.
Sometime back, I had read about how the VIX had become a useless indicator unless taken in relative terms. My grab for the trend yesterday came out right out of that faint memory.
Just a little fact. While many people seemed preoccupied with the Dow and the NAZ and that they did not break their March/April lows prior to Sep 11 (hence pointing to Sept 11 as the reason for it all), the relatively 'unpopular' S&P 500 actually broke its March 2001 lows between 9/7-9/10 ! Before 9/11.
Judging by all posts, it seems we all look for data, in fact seek data, that validate our positions (but natural).
I also follow da_chiefs board (old and new), where I noticed a conspicuous dearth of messages during the February-March 2001 downturn. Understandably so.
I am short only on a single individual stock right now, and not the general market. However, I feel that the market is reaching a significant top. I am looking at other factors such as liquidity (again not absolute values but values relative from where they were a month back). I do not have numbers to post but just the trends from what I have read kept between my ears.
I am looking at it this way...that despite the massive liquidity push that has brought about this rally from September, the market has only managed this much. ie run into overhead, trap newbies and fall back to create more/replenish overhead.
So in a relative sense, it is a lot weaker than folks think it to be. But that is just an opinion, and like all, I am also seeking data to validate my hunch (can I call it that?).
Early January saw a rush into equity funds by what I think are late comers. I saw the inflows data that subsided after that quite dramatically. The market promptly sold off after it.
Just anecdotally, I could hear a lot of bullishness from ordinary folks I work with who wanted to open new accounts (!) and put money into the market(end of December). That was also the time that the liquidity began to ease.
About the January effect..there is the December AND January effect whereby if the December low of the DOW is taken out in January/first quarter (something like that) then that means a down year. In fact, this 'relationship' has held equally if not more, than the traditional January 'indicators'. I do not subscribe to either, but that is just a personal thing. Who knows?
The liquidity crunch (via other instruments the Fed uses and not interest rate increases as the media and some market talking heads like to point out) in Feb 2000 and later brought the market down from the bubble highs. That was the withdrawal of Y2K money-theory of Douglas Cliggott that I subscribed to then (made sense to me), which was in the minority, but turned out to be the most astute observation of the break of the bubble.
The Y2K pump and the interest rate cuts of late 1998 (one of which was done I think on options expiration! and during a time of economic boom) which were 'symbolic' in trying to weaken the dollar versus other collapsing currencies only served to create the enormous top. That was fun I honestly must say, while it lasted.
This liquidity pump and withdrawal now seems reminiscent of early 2000. I do not expect the effects to be as dramatic, but we will see, as time will tell.
As far as the general economy goes, I think it is bigger but weaker than what it was at the start of the last bull run say in 1991 or 1994 (1982 was a true start of a bull run). People look for similarities between then and now. I do not think they are similar. Sure some similarities exist, but to use them as a guide for future price action is pretty useless imo.
Anecdotally, here in Detroit I am seeing more layoffs that are occurring quietly contrary to the 'lagging/leading' data that is dished out each day about the economy. I know that CISCO (!) is laying off and has been for some time employees in a very quiet way (people almost disappear without any notice).
Sometime back, J.T. when you were getting your new Dell, you said they (Dell) told you that business was great. You sounded bullish on Dell if I recall correctly, and subsequently the market then (late August?) and understandably excited about the product.
Don't get me wrong; I own a Dell too, a laptop from late 1999. Then I thought to myself, but of course, what else would Dell say ? They always say such stuff. Saying business was not doing good would only detract would-be buyers/spread unwanted notions (not that it would have changed your intent to buy)
And then I knew that Gateway and Compaq were doing poorly as was the whole PC sector which is getting increasingly commoditized (the last to fall that are falling are the CPUs and GPUs). Dell did well at the expense of its competitors in a shrinking pie scenario.
Now some folks who like to think contrarian might point out, that this is when it all gets so negative (personal/corporate bankruptcies hitting higher highs, debt levels, accounting fraud, deflation (not good really), possible reforms but maybe more political battles and lawsuits, terror, government deficits, paying the rest of the world to side with us, etc etc) that one must pile in.
I do not think that the enchantment with the market has quite gone away yet. When that does, that will be the time to get really contrarian, really turn bullish. Until, then it is a trade based on some facts we seek and some of us get it right now and then.
And hey, honestly, after all this rambling (gotta go now), I am ready to make money any which way I can..long or short. The long/short method is secondary.
Happy Trading All. |
