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Tuesday, May 25, 2010
NO NEED FOR A MORNING JOE
Overnight action continues to pummel the markets, if you need a morning cup of Coffee to wake up now something is wrong. The above chart with the Dow Futures shows that we have now traded below the "flash" crash lows. I said at the time that was the sign of coming attractions, only the media was hyping that as the actual low. We may have had liquidity issues due to trading platforms, but the reasons for this decline are real and there was no reason why that would have been the absolute low. However, I am a short term trader, so I move to where the opportunities are and for the moment I think they are for a long side entries in some places. I mentioned I would be looking for a fakeout once this low was taken out, so I am now looking for buy entries.
However, the main indicators I use to measure things are not giving them here even though we are in a price zone I want to look long. As a result I am just not doing much trading right now. I do remember recently a reader of my blog who I respect a great deal sending me an email about a buy signal that was generated for stocks very close to the top, by a well known market guru. It was based on a certain number of issues trading above certain levels, and it was at a very high percentage. Of course being the contrarian that I am, my remark was it sounds more like a sell signal and I was right. This gentleman ( the investment manager who issued the buy signal not the friend who told me about it ) has a good record with this particular signal, but sometimes you really have to think about what you are doing instead of just blindly following mechanical rules.
It certainly made no sense to me to all of the sudden go long after we have had a rally the magnitude of what we have had, and were into obvious resistance areas. I had been mentioning for months in the 1229 - 1235 area in the SP 500 as a problem area. Maybe he gets bailed out by the rally returning to the market, that would not shock me. However, at the very least you could have bought in 10% or more cheaper now. I warned repeatedly in here that this market could fall 2000 points in a flash, due to how it was arficially raised to valuation levels that were not sustainable. You may recall the charts I posted with individual stocks, one being a blue chip Dow stock, where it looked like a Pork Belly chart. I had commented this was not sustainable, so this is what you get when you get these types of price extensions.
Ironically, now we are getting some interesting market cross currents that make me wonder if we are not going to reverse from here. Normally with an overnight wipeout like this you would also see more downside movement in many other markets. I would have thought the Dollar would be up alot more as well. The weekly trend in the indexes is still up, so we are into support levels in this area. We also have some divergences in some of my proprietary things I use to spot reversals. One of these is shown below in the Euro and there are many others. I do think the next move is going to be up from here and hope to get long in the next few days.
These divergences have been present at many major turning points, and I have learned to set my opinion aside and trade them when they show up. I am looking for a long entry in the Euro due to this right now and hope it develops this week.