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Thursday, October 29, 2009

Here we are finally at a crossroads in the stock market. We have retraced right into the uptrend line that has held for months. Under normal circumstances this would be a low risk buy, with a stop just under the trendline. As a short term setup it still is that.

We will have to see what the commercials have done on this decline when the COT report comes out on Friday. If they are buying this then we potentially have a nice buying opp setting up. However, in the Naz which led us down in 2008, there has been big selling recently by the commercials, which was the tip off last year that something was wrong. It appears to have been pretty timely again this year so far. It is unlikely that there would be a large enough reversal of that selling this fast, which is what is required to turn this bullish.

You can see as I have labeled it, how worthless the seasonal has been this year, just been dead wrong at every turn. This does happen with seasonals at times and it is why it can not be solely relied upon for anticipating swings. It is a tool nothing more.

Here is what bothers me the most about this retracement. When I scroll through individual ETF charts for various sectors as well as countries, I find no buy setups, only sells on a bounce situations. There should have been some leading sectors or markets if we were strong underneath, but they almost all look just like this chart.

Here is what this tells me. This market as well as individual sectors is a bit on the defensive now for the first time since March. I plan on shorting bounces in almost all markets here and then watching the things I watch as we drift into weekly support which is in the 1010 area. At that point I will look to see what the fundamentals are as to whether I get in aggressively long or conclude that the game is finally over here.

This has been one of the strangest rallies if not the strangest one I have seen in my years trading. Many conventional things that have typically been good tools for picking swings have not worked at all, Sentiment, Seasonals, Weekly retracements with comm activity matching them, I could go on and on. I also think the earnings statements we are seeing and the spin about a recovery are all an insult to everyone's intelligence. There is just so much dishonesty out there in the world right now it is shocking. I know from my other business interests that once you go outside of the government sectors that virtually nothing at all is happening.

I will state what I have before in here, and it is nothing more than my opinion. It is my contention that funny accounting is once again back on Wall Street, it only left for 6 months if it did at all. Even with all the cost cutting, some of these earnings reports only make sense in the context that bonuses were earned based on them. I suspect if bonuses were not tied to them, they would not be reported as they have been. We don't want this "recovery" to get derailed right now.

You always have to think about who with the most power has the most to lose by negative events being reported, then assume those reports won't happen.

2 comments:

robert said...

The drama is killing me.

What is the stock market COT report that came out today (Friday)?

The big boys think we're going higher or lower?

Thanks Chris.

Robert Campbell

Chris Johnston said...

I will leave a separate thread on this over the weekend