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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Chris who wrote (7616)	4/19/1998 6:46:00 PM
From: Robert Graham	Read Replies (1) \| Respond to of 42787

Good to hear from you on some of my thoughts. Yes, I agree that fundamentals and even P/Es are irrelevant in this market other than just as an artificial guide when looking for "value", whatever that means. To me, value means what stock is likely to go up, preferably in the near future, which as you know need not have anything to do with fundamentals of a given company. Also the huge money inflow into the markets is even causing the technicals to behave differently in terms of the expectant response not materializing from a technical condition. As Donald Sew mentioned in a previous post, he observed that even though the market did respond to oversold conditions per his technicals, the market only responded in a very muted fashion and then continued its uptrend. This type of pullback has little value to most players of the market except perhaps for the day trader. I suspect many day traders when this happens take the other side of the pullback fully expecting movement in the opposite direction. This accents the "swing" nature of these pullbacks from overbought conditions, particularly in this type of market where you have the funds buying on the pullbacks. I have seen many days this year where for instance the DJIA pulls back to between lets say 50 and 70 and then end up positive several points or more at the end of the day. This has happened like clockwork in many cases, like an elevator that has stopped at a floor momentarily to let out customers and take on more customers before continuing up. This is now happening once again with the DJIA and this last Friday the S&P 500 is showing some upward strength. I think next week will give us a better idea of what is actually happening. I suspect that among others it has been the technicians that have been getting off of the elevator instead of staying on which may be contrary to their read of the chart. But I suspect if individual instances were examined, one would find their choice made more on their "gut" feeling that the market is "overextended more every day" and this cannot go on "forever". This apparent unexpected nature of the market confuses technicians and causes them to react to the sentiment this generates in them of "fear" instead of allowing the technicals to tell them simply that the market has changed. A better plan would be to understand that the technicals may at first glance give conflicting messages, but understanding the fundamental nature of the market helps place this in perspective. The fundamental nature of the market has changed and so will how the technicals respond to the price action of the market. So in this case the market can continue up on "weak, overbought" technicals and even periods of diminishing price momentum, where the anticipated market correction does not materialize. A market correction will only happen when the funds stop moving very large amounts of money into the market. And even then the market sentiment this market has created can send the market even higher before a major correction happens. Until the money inflow tapers off for the longer term, technical pullbacks will end up being a very minor bump in the road irrespective of the "overbought" condition of the market. I think in this current market situation, price patterns and basic charting concepts like S&R, trendlines, and even MAs, and comparing how one segment of the market performs in relation to another segment as in sector analysis for instance, can provide much more information than strictly following the technical indicators like the oscillators. Also perhaps more of an emphasis can be placed on indications of money flow and longer term technical indicators would be helpful. Better yet, focus in on where the big money is moving and look for evidence of this inflow tapering off can yield worthwhile results in an analysis of the market. For once the huge money inflows disappear, the market will become much more volitile and respond more closely to the tehnicals of the market such as OB/OS conditions. When the dropoff of money inflow happens, I think market sentiment will become very important. This "elevator" effect I think is providing a measure of confidence to the speculator in the market. Look at how they are now picking up any Internet stock in hopes of having it pay off like Netscape and other Internet stocks have in the past. I understand the opinion that the market is playing the Internet stocks in their response to the Asian situation, but this is one speulative way in playing the market particularly in what approach the market is taking to this type of stock. So after the money inflow abates, IMO market sentiment will determine if the market will go higher, but at the same time the market will be much more volitile and more prone to a correction. This will be a different market than that of the present market driven by liquidity which will also show up in a different way in the technicals. Meanwhile, the current market is likely to continue up despite some of the ongoing technicals indications to the contrary. I do not think the funds have any intention at least in the near future of backing off from their movement of large amounts of money into the market. All of this means that the technician needs to descriminate between their barrage of technical indicators in order to see what the indicators are actually telling them about the market. Just counting the vote given by each technical indicator and taking the consensus in this way may not work with the current market. This is how Martin Pring correctly forecasted that the market will not continue a major downward correction after the initial correction last November. There were conflicting technical signs, but he looked at his suite of independant indicators, some which involved market and economic fundamentals and market sentiment, and came up with the conclusion that even though most of his indicators were turned down which would appear to indicate a further correction, the market will actually consolidate. Many other technicians of the time including those who are prominent and popular were predicting a continuation of the downward correction of the market. Just some thoughts to reflect on. Now watch the S&P 500 tomorrow make a historical drop just to prove me wrong. ;) Bob Graham