Thursday, July 16, 2009

Some Questions to Ponder...

After going through my scans, I continue to be rather befuddled by this market. There are just so many conflicting signals or things I see that are counter-intuitive right now that it really blows my mind. I thought a good way to address them would be with some questions. Here we go..

Question #1 - How can the market pullback when so many stocks I saw were setup in beautiful, bullish consolidation patterns(talking about the first week of June), yet move quickly higher when I see very few nice looking patterns, but a ton of wild, volatile patterns with subpar volume trends?(talking about right now)

Answer #1 - I don't really know. It doesn't make much sense. I'm going through my charts and I found a total of 8 stocks I have on a watchlist to maybe buy(an extremely low number). Only three of these have nice Balance of Power levels (Telechart accumulation indicator). Not good at all and one of the reasons I am considering earnings trades and earnings trades only right now. Back in early June, this same watchlist had between 30-40 stocks on it on any one night, most with max BOP levels.

Question #2 - How can so many bearish chart patterns form all at once, with so many stocks breaking down on very heavy volume(talking late June here), yet just bounce back to former levels with ease on lower volume like the selling never happened (talking right now here)?

Answer #2 - I don't really know. It is happening however. One stock in my scan tonight was ARST. This gave off a sell signal between July 6-8 as it broke its 50 day moving average on quite heavy volume (July 8). If anyone bought at this point, congrats, because this stock proceeded to climb five of the next six days (three of which on lower volume than the day before) and is now at new yearly highs. Go figure.

Question #3 - We are very overbought here as the Nasdaq has been up seven straight days. Does it matter?

Answer #3 - I don't really know. On the RSI (2) short-term reading, we are as overbought as we've been at any point this year on both the Nasdaq and S&P. The McClellan Oscillator is at its highest point since the beginning of May. However, if the market likes the earnings tonight and tomorrow morning, I could see us up another 1-2%. It makes sense that we pullback here soon, but what makes sense doesn't really make sense if you know what I mean.

I don't know if any of the above is worthwhile, but it explains some of my thought processes right now and really why I haven't been trading much at all over the past one or two months. I just really don't have a good feel for this thing. Trading for one-to-two week time frames (which ideally is what I would like to do) is so difficult right now because nothing makes sense. What typically looks good turns out to be awful, and what typically looks awful turns out to be good. I hope that we can break out here and that some really nice patterns will start to form so I can just trust what I see and go with it. For the past few months, I don't think I've been able to do that. Tomorrow is options expiration and with the overbought readings and as crazy as this week has been, I don't plan on participating. Good luck and feel free to share your thoughts and opinions on some of the above questions. Maybe some of you out there are asking yourself the same questions I am.

Oh yeah, I forgot to mention, GS (my key stock from earlier this week) is still fighting that overhead resistance around $154-$156 and has made gains the past two days on decreasing volume each day. That means it will be up $10 tomorrow, right? I wish I knew.


Anonymous said...

Mac, I got the answer. With the Bear Sterns and Lehmans out of market, C and BAC weak. there are really only a few players and each players have a bigger piece of pie and therefore can manipulate the market. Additionally, the govt is at work here. The econ news was turning south again since the payroll #. I think you are smart to stay away. I will be doing the same.

BTW, thanks for your daily thoughts!

Anonymous said...

ARST~obviously some insiders are spilling info to hedge funds regarding new government contracts secondary to recent cyber attacks. Wonder how deep the leaks come from. Remember everything is crooked on Wall Street, everything is a swindle to some degree. ARST exists for one reason, to benefit major shareholder.

Mac said...

I've heard people talk about the GS factor as they are the ones that run everything. I try not to believe these theories, but sometimes they are very hard not to consider.

Anonymous said...

in March Roubini says things will only get worse and market heads off to the races. July finds Roubini saying things are getting better while last week he was on TV telling everyone the world needs to unwind trillions of $$$'s of debt. I've heard this called the "Roubini top"

Woodshedder said...

Mac, I feel your pain, and so does my account. The last two weeks have put me in a significant drawdown.

Nothing is making sense.

I know it sounds like a conspiracy theory, but High Frequency Trading are providing up to 70% of the volume recently. They do not care for fundamentals, technicals, etc.

Looking at it in those terms will somewhat explain the crazy moves we've been seeing.

I agree with the first Anon commenter that there are fewer and fewer large players now and that may exacerbate the high frequency trading problem.

As for RSI2 being extended for many days, there is not much of an edge there for shorting. A depressed RSI2 is a much better edge for getting long.

Good luck Mac, it feels like all of the little guys are getting pushed out of the market.

And in a sign that big brother is watching, the word verification is "dranged." I think it is right.

Mac said...

That's why I haven't been trading at all for about two months now Shed - I just don't trust anything I see. As you said, nothing makes sense and when it stays like that for a while, when you do see good setups, you don't trust them. That's why I didn't short all those oils that setup a few weeks ago - I just expected some weird reversal to happen just as I entered.

Unless you are day-trading, things seem very difficult. Glad to hear i am not the only one.