Market Wrap for September 25th, Repeat After Me: “Capital Preservation”
September 26, 2008 | Leave a Comment
By Thursday’s closing bell, the S&P 500, DJIA and NYSE all finished at least 1.7% or higher on heavier volume than the previous session, which technically means we had ourselves a follow-through day. The Nasdaq lagged, however, as did the Nasdaq 100; as for the Russell 2000 and S&P 600 –well, both got just a fleeting glimpse of their 200 day moving averages before being turned back. And not only did the IBD 100 and 85-85 indexes underperform, volume actually came in lighter than the day before. The fact that institutional investors weren’t even remotely interested in snatching up shares of leading stocks does not exactly inspire confidence in this fledgling rally. “But, wait,” as they say, “there’s more….”
Spoiling the FTD party was the wave of selling that hit the market during the last two hours of trading, dragging the indexes well off the highs of the day. During the session, the NYSE had been up as high as 2.7%; the S&P 500, 2.9%; the Dow, 2.8%; and the Nasdaq, 2.6%. Also, the volume of every index, while higher than the previous day’s volume, was still below its average. Another red flag: there were just 13 stocks making new annual highs compared to 191 stocks making new lows. And the top five industry groups on this follow-through day: Media-Periodicals, Leisure-Photo Equip/Rel, Leisure Movies & Related, Oil & Gas-Intl Integrated and Banks-Foreign. Only one of those groups is ranked in the top half of IBD’s 197 Industry Groups and it is ranked 97th. “But, wait, there’s more….”
Durable goods dropped more than twice the initial estimates back in August, and new home sales fell far more than expected, hitting a 17 year low. The annual rate of new home sales plummeted 11.5% to 460,000, the lowest reading since January 1991. Bad, huh? “Well, wait, there’s more….”
As of this writing, futures are pointing to a rough start to the trading on Friday morning. It seems the talks concerning Treasury’s $700 billion bailout has hit a snag and are in danger of collapsing. Henry Paulson is said to have gotten down on one knee, begging Democrats who left to caucus not to “blow up” the legislation. Truly a surreal image. To make matters worse, RIMM missed earnings and the after-hours traders mercilessly pummeled the stock about the head and shoulders. This will surely add insult to injury to what is shaping up to be another volatile session. Never a dull moment, folks.
While there seems to be nothing but bad news and negativity, remember to keep emotions in check. Don’t get caught up in the hysterics of our beloved media; while exasperating, it serves a purpose. Now more than ever let the charts be your guide. It may very well get a lot worse, my friends, I’m not going to lie to you, but this I can guarantee: eventually the charts will come back. The whole world will be worn out and flabbergasted. The last thing they will want to think about is stocks. The charts, however, will tell a different story. They will reward those who waited on them. Just make sure you have the capital to take advantage of what you hear.
Repeat after me: “Capital Protection.”
A special Market Wrap brought to you by Author_Ego.
Thoughts on VIX and VXN
July 14, 2008 | Leave a Comment
I just wrote my daily commentary over at my blog and included a blurb about the VIX and VXN. Here it is:
“VIX and VXN continue to be “low.” I had the opportunity to speak with an individual who had graciously share that some large institution was handling a large quantity of employee options. There is a debate if the VIX/VXN have sufficiently signal a bottom. Afterall, both have moved almost 100% off their May lows wouldn’t that show enough fear? One explanation that was given to me was the large, LARGE amount of employee options that had hit the market forcing this large institution to sell volitility (vol). What this creates, a low VIX and VXN. Therefore, if this large institution was selling vol than VIX and VXN have moved sufficiently because the indexes are “artificially” low. But, in my experience if a financial instrument are “artificially” low or high they tend to OVER correct on the other side. In this case, VIX and VXN aren’t sufficiently pricing in fear and will overshoot at some point. The bottom line, we haven’t seen our ultimate lows leading up to a new bull market and we should continue to wait patiently on the sidelines.”
I think it is important here to note that when anything is held down artificially it will over correct to the other side.
SP 500 And Nasdaq Pullback In A Calm Fashion On Lower Volume, While The DJIA And IBD Indexes Continue To Rally; Where Is The Volume And Where Are The New Leading Stocks?
December 7, 2007 | 5 Comments
Overall, it was a pretty choppy and inconsistent day on Friday, but it was still a good day when we take it and consider that we continue to hold well in the face of all the bad news from the subprime area of the economy.
I heard many complain that we did not finish higher today on the Nasdaq. I, however, disagree with them and find it more bullish that we finished a tad lower. That shows me that we are consolidating the gains, since the November 28th follow-through day from the IBD indexes, quite well. If we would have sold off today on heavier volume, then I wouldn’t consider the days action bullish. But the fact the we sold off a little and the volume was lower is exactly how you want to see the market pullback after adding on some solid gains.
Don’t forget that the DJIA finished higher, even though volume was extremely low, and that the IBD 100 and IBD 85-85 indexes finished higher. The big caps and leading stocks seemed to hold up well on a day of profit taking. So the people that were not happy with the Nasdaq do not have to look too far to find some other positives in the market.
Stocks Close Near Their LOD But Lack Of Volume Indicates There Is Still No Distribution Since The 11/28 Follow-Through; IBD 100 And 85-85 Finish In The Green
December 3, 2007 | 2 Comments
Stock indexes started the day off in a nice steady slow trend higher. But around 1PM on the east coast, stocks decided to put in their highs and subsequently sold off the rest of the trading session closing near their lows. I saw some talking heads indicate that we have seen the top and saw others say that they were more bearish than at any other time since 2000. However, RIGHT NOW, I don’t see it, because I follow the general trend of the market and right now the trend is up.
As long as the 11/21 lows in the IBD 100 and IBD 85-85 hold, I have to remain with this bullish bias. Even though this might sound funny to some of the perma-bears who are for sure this market is going to rollover–which I believe it will too (just not as much as people like Doug Kass)–the market is currently in the middle of a confirmed rally and during confirmed rallies HISTORY has proven that it is smarter to be long than trying to short.
The time to short is when these low volume rallies hit resistance and then start to selloff on higher volume. When they selloff and fail at a key resistance point or moving average, that is when it is safe to short. Shorting stocks that are just breaking down below support is ALWAYS a sure lead to the poor house.
Stocks Finally Provide The Confirmation To The March 21st Follow-Through; Nasdaq Leads Market Higher, On Higher Volume
April 3, 2007 | Leave a Comment
Possible good news out of Iran over the release of the 15 hostages, oil prices falling 2% to $64.64 as the result of the possible release, positive foreign market gains in Europe and Asia, and positive news from the housing market was just what the market needed, as stocks gapped higher, held the gains, and rallied into the close to close near their HOD. Read more
Stock Indexes Follow-Through On Day Six Of Rally Attempt; Something Seems Wrong About This Follow-Through
March 22, 2007 | Leave a Comment
Stocks were boring and dead all day long, until 2:15pm when the Fed announced their decision on interest rates. When that happened, stocks exploded to the upside, destroying shorts in the process. The party was not started based on the decision, as everyone expected rates to stay at 5.25%. The fireworks erupted because the Fed left out the hawkish comments and adopted a more neutral rate policy. That sparked non-stop buying on strong volume, into the close.
At the close, the Nasdaq led the way with a 2% rally, retaking its 50 day moving average. The SP 500 and NYSE also retook their 50 day moving averages, with each rallying 1.7%. The SP 600 gained 1.6%, the SP 400 rallied 1.4%, and the DJIA gained 1.3%, rounding out a strong day in the markets. The two indexes that are throwing up a red flag to me are: The IBD 100 and the IBD 85-85 index. The IBD 100 gained 1.8% and the IBD 85-85 gained 1.6%, both lagging the Nasdaq’s gains. Normally at the start of a strong bull market, where we get a follow-through, these indexes will lead the market. They did in all the other bottoms, since October 2002, except the most recent one in July/August. Then these indexes also lagged in what turned out to be the weakest bull market I have been a part of.
Volume was much higher today on the NYSE and the Nasdaq. Nasdaq’s volume came in higher by 26%, but the NYSE only saw a 12% jump in volume. That is not a big volume increase over the previous day on such strong price gains. The other problem with the volume is the fact that on the NYSE it was only even with the 50 day volume average. On the Nasdaq it was only a tad higher than the 50 day volume average. On the best and most powerful follow-throughs that launch strong rallies, the indexes will normally launch a rally on volume well above this average. That did not happen this time, so this is another red flag on the rally.
A Choppy Day With A Downside Bias Ends With Stocks Slightly Lower; Quadruple Witching = Quadruple Boring
March 16, 2007 | Leave a Comment
It was a weird sluggish session, today, but in the end it was another typical quadruple-witching Friday. However, there was plenty of data for Wall Street to go through, despite this once a month event. The CPI rose a little over .4%, a bit higher than the .3% estimate. But the core prices came in line rising .2% for a year over year change of 2.7%. Industrial production jumped 1% in February, over the readings for a .3% increase and its largest increase since November. Michigan consumer confidence fell (are you surprised there?) to 88.8. Add the fact that oil fell below $58 and might have thought it would have been a more exciting day. Nope. Quadruple-witching ruled the day. Read more
Indexes All Finish In The Red But Still Finish Well Off The Lows; Leading, Tech, And Small-Cap Stocks Lead This Week
February 24, 2007 | 2 Comments
Stocks finally decided to take a break, across the board, as stocks meandered in the red all day, closing off the lows. However, a slight change of character was the fact that there was no last hour rally. That is probably due to most traders starting the weekend early as an exhaustive holiday shortened week comes to an end. There was no doubt that with no economic news of significance today that digesting this week’s gains was a good thing. Read more
Stock Indexes Erase Early Morning Losses, Rallying Into The Close, Closing Near Their Highs Of The Day
February 17, 2007 | Leave a Comment
Stocks fought off morning weakness, caused by a revenue warning from MSFT, and rallied the rest of the day to close flat and near the highs of the day. This bit of news from MSFT particularly hit the Nassy the hardest as MSFT represents 6% of this index. The strength in the indexes in the face of the selling in MSFT shares can only be seen as impressive. Many traders expected much worse, considering that the news came on top of a report showing Housing starts falling 14%. Read more
DJIA, DJTA, DJUA, NYSE, And SP-400 Hit All-Time Highs; The Giant Wall-Of-Worry Proves Easy To Climb, For Stocks
February 15, 2007 | Leave a Comment
Today stocks showed, ONCE AGAIN, why shorting a market that is in a long-term uptrend is an unprofitable and low reward/high risk proposition. All it took today was positive comments from Mr. Bernanke about the economy to ignite a very powerful rally that helped five key indexes hit all-time highs and another one hit six and a half year highs. In front of the Senate Banking Committee, Mr. Bernanke stated, “…the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing of core inflation.” Those words right there ignited the rally that we saw today. Read more
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