"The mind, ever the willing servant, will respond to boldness, for boldness, in effect, is a command to deliver mental resources." - Norman Vincent Peale 1898-1993, American Christian Reformed Pastor, Speaker, and Author
Extracted in part from the Sept 18, 2007 market update issue
On Tuesday we had a buying climax as opposed to a selling climax where the up volume accounted for over 90% of the total volume traded. It actually accounted for over 96% of the total volume traded. In light of the massive rate cut and the big move today the volume was on the weak side; on such a big day one would have expected 5-6 billion shares to have traded instead only 3.6 billion shares traded. This leads us to belief that this rally was more of a relief or surprise rally as most people were expecting a quarter point rate cut and the ½ point caught them by surprise and instead of sitting down to digest the info they just reacted which usually is the case. Despite the lack of volume there are several positive developments;
- The market has been able to mount a strong rally in the face of record oil prices; this alone is a very strong bullish development.
- For the first time in almost 2 years we have a buy signal on our smart money indicator on the hourly charts. This is not as bullish as it would have been had it taken place on the daily charts but its still a positive development as this chap refused to give a buy for a very long time. If it should give a buy signal on the daily charts it will add even more support to our argument that this market appears to be poised for an explosive move.
As we stated earlier the Dow touched the +3sd bands yesterday and this has taken place in a rather short period of time; it has moved from the -3sd bands to the +3 Sd bands in a space of under 30 trading days. The next step is at minimum a pull back to the 18 day moving average which in this case falls in the 13324 ranges, but we feel there is a good chance that the -3sd range will be tested again (12800 ranges) and in doing so a double bottom formation will take shape. This will also confirm the pattern which we have spoken of several times in the last few weeks that exists between the Utilities, transports and Dow industrials. The utilities and the Transports have both put in double bottom formations.
We have to however admit that the ½ a point rate cut by the Feds has distorted the picture slightly and this could prevent the above scenario from fully completing. Thus risk takers should take a layered approach when buying call options or futures on the Dow, QQQQ'S, OEX etc
Conclusion
The bigger then expected rate cut by the Feds has galvanized the masses and at the same time the 2 trillion plus dollars sitting in money markets accounts are earning even less now. These small chaps who have kept this money in these accounts might decide its time to jump into the markets. Expect the media to start hyping the benefits of investing in the stock market and real estate now that rates have been lowered. Lower rates also means its now cheaper to borrow money so more investors will start playing with margin.
Traders willing to take some extra risk should now use a layered approach when buying call options on the Dow, QQQQ.s, the OEX index and or futures on the Dow. Once again shorting is not an option and should be avoided completely by all those who seek less stress; in order to make money here you have to be constantly watching the markets and ready to pull the trigger. In our opinion the risk to reward ratio is not there and thus it's not worth playing.
Following quotes from previous market updates
Over the last few weeks we have systematically laid the ground work for our argument that this market appears poised for a big move up. We are not basing this on gut feelings or instinct or looking into some crystal ball. We are looking at our tools both psychological and technical and objectively examining all the data out there that has helped predict bullish moves in the past. We have looked at what the smart money is doing, what the dumbest of the dumb money is doing, what the public is doing, we have also noted the 2 trillion plus dollar sitting in money market accounts just waiting to be deployed, the formation of hedge funds by nations such as China and the specific pattern that exits between the Dow industrials, utilities and Transports. All these factors are suggesting that the markets are poised to explode upwards so even though our guts or emotions speak otherwise we are disciplined traders and thus we must only focus on the facts. The facts are suggesting that it is very dangerous to be bearish now unless you are one of those players that can jump in and out at a very fast pace. Market update Sept 11th, 2007
Expect more volatility in the short term which means lots of wild swings but our indicators, the smart money, NYSE specialists, and the dumb money's action all suggest that the markets are not ready to crash yet and that most likely they will mount another spectacular rally in the not too distant future. Market update August 21. 2007
Not one week goes by without a plethora of contradicting data hitting the markets. Today the markets supposedly pulled back because of rising concerns about the mortgage market; next week they will state the reason was oil or rising interest rates or higher inflation etc. The list of nonsense never stops. These markets are becoming increasing volatile simply because more and more people are entering the markets; indeed 10 years ago volume of 4 billion shares in one day would be something out of a science fiction movie but today it's not such a big deal. 100 point swings no longer generate the same noise they did when the Dow was trading at 10,000. Traders must understand that the higher the markets climb the higher the volatility; those that cannot adjust will be buried alive it's as simple as that. In the years to come traders will have to start getting used to 200-300 point plus swings on a daily basis.
We feel that there is a pretty good chance that the markets could test the -3Sd band which now falls in the 13100 ranges and if this scenario transpires we would view it as a huge positive as these markets do need to let out some steam. However we do have a rather huge short position in the NYSE and program traders are also aggressively shorting these markets; these two factors could therefore potentially limit this pull back. Bottom line is that we would not be shorting these markets now. If the Dow pulls back to the -3Sd bands we might seriously look into the possibility of issuing a series of call option plays on some of the most popular indices. Market update July 24, 2007
New comments Oct, 1, 2007
Surprisingly the Dow was able to cut through the 14,000 area with relative ease; the picture of a hot knife slicing through butter comes to mind. What appears to be lacking though is the intensity in volume. During the corrective phase there were times when the volume traded was as much as 6 billion; that has not been in the case in the last 2 weeks or so. In fact for the most part the volume has ranged in the 2-3 billon shares a day range. It would then appear that there is a pretty decent chance that the markets will correct several hundred points before soaring much higher. However taking the intermediate time frame the recent developments are rather bullish and it appears that the markets are set to soar to much higher heights in the not too distant future.
"'Come to the edge,' He said. They said, 'We are afraid.' 'Come to the edge,' He said. They came. He pushed them... and they flew." - Guillaume Apollinaire 1880-1918, Italian-born French Poet, Critic
