Every equity peak is followed by a drawdown. After a fantastic January, when every week was a winner for our group, we skidded into February with a loss. We are still comfortably ahead for 2009.
A very perky rally in the market today. Almost as if a groundhog took a second look and decided there was no shadow – but what does NH-NL say?
The market turned down after more talk from Secretary Treasure Geithner’s plan for banks. Oil Service, Basic Materials, and Gold/Silver were the strong sectors today while Airline and Retail were the weakest sectors. The SP marched up to the 850 level and turned downward. The trading range keeps getting smaller and two days in one direction is more than the market players can tolerate. The long term time frames continue to be oversold yet we cannot sustain any type of Bear Market Rally. Other than short term players Investors simply are uncertain about the powers to be to give us a feasible fix for the banking situation. We need a little confidence restored before folks are willing to invest aggressively anytime soon. For now it is short term players dominating this market. The Index Put Call ratio has kept a lid on the advance and today the Index PC ratio did close at 1.19.Today I worked over at the CBOT with a corn trader and traded corn on the screens today. We had a nice gap open to fade and then rode a downtrend down all day. I posted a video in the video vault of the trades we made today. His dad is a 37 year veteran in the Soybean pit but has never looked at a chart in his life. The young trader is convinced to show his dad that charts can be traded of off. Toward the close we walked over to the bean pit to see how things were going. The paper is totally drying up in these pits. The veteran pit trader told me he may have made enough money to buy a bag a chips today, It was unbelievably slow in the pit. There was a little action at the close and in a way it is a sad site to see the paper in these pits dry up.
Although weakness abounded in the financials the major indices rallied in spite of the ugliness. Housing, Transportation, Biotech, and retail saw the largest gains.Again the markets rallied on some talk from Treasury Secretary Geithner that he plans to be very aggressive with fiscal policy. The market of late has tended to rally off potential government actions. It’s after the talk that the selling commences. This market is dominated by short-term traders and staying in positions for more than a day or two as not materialized into anything significant. Buying weakness and selling strength in a matter of days has been the game of late.
Today was an unseasonably warm day in New York City. Sunday was frigid, but today I walked home in shirt, no jacket. Does this mean the winter is over? The weatherman says a snowstorm is on its way. Let us take a look at the season of the stock market.
Dear Spikers and SpikeTrade Members,If ‘the January Indicator’ applies to our group, we should have a very good year. The Spike group as a whole has gained over 4% in January. Only two Spikers underperformed the S&P, while the great majority beat the index. Kerry is doing a fantastic job keeping records for our group. I have often said “Show me a trader with good records, and I will show you a good trader.” Perhaps I should add “Show me a group with good records…” I hope you are tracking equity charts on the members’ home page of www.spiketrade.com/members/, updated each weekend, showing the top four Spikers for the past 13 weeks. This week Ross is in the lead, with Henry on his heels, followed by Jeff and Susie. Kerry and I have just finished writing checks and sending diplomas to Q4-2008 winners, as well as special prizes to 2008 annual winners. We look forward with pleasure to writing more checks and signing diplomas for Q1-2009, two months from today.I have been trading this month together with Pat and was surprised by the January report she wrote for us yesterday. Going beyond the percentage of winning trades (high) and the slope of the equity curve (rising), she made several entries that made me stop and think: the best trade, the worst trade, the best entry, the worst entry, the best exit, the worst exit. It was a surprise to see my most profitable trade classified as our worst trade for the month. I made it in a hurry, with no written plan, and sat through a nasty drawdown before the trade began to work.I hope you are keeping good records. At a risk of sounding self-serving, I recommend using AK47, created by Kerry, Jeff, and me. We built it for ourselves and later offered it to the public. You can see a demo here http://shop.elder.com/shopexd.asp?id=341 and if you decide to get it, be sure to ask Inna for a Spike discount – 10% off and free delivery.<a href="www.spiketrade.com/members/">SpikeTrade</a>
The group ended the week up 1.11% and is up over 4% for the quarter. This is an impressive start to the year that continues to be choppy and difficult to navigate. Grant win Gold this week with an impressive 11.79% gain, Jeff gets Silver with an outstanding gain of 10.62% and Dave M wins Bronze with a gain of 5.5%.Spike Members Andreas W and Tim H win $20 dollar credits with gains of 13.70% and 10.93% respectively.Wednesday upside was never followed thru after the news of a “Bad Bank” to off load toxic assets hit the news wire and the new stimulus bill being passed in congress. None of these government engineered events have rallied the markets in any sustainable move upwards. The markets need willing buyers that will bid up for stocks. That is not occurring. Buyers are only at lower levels and then willing to take quick profits on the bounce.For many the news becomes just another comical show. We hear lots of talk about what should be done, yet when we see the plans, they are just more of the same ole stuff. I hate to get on my soap box, but the backbone of the American economy has and will always be small businesses. If you want to get this economy perking again, then give a shot of adrenalin to the life blood of this country. How about a real change and inject a trillion dollars to those that will do something with it. Can you imagine what may occur if savvy young entrepreneurs were injected with a trillion dollars? Now, they cannot just go out and do whatever they like…but if small business could invest this money into new business and technology I guarantee you would see an impact within 12 months, not decades. Disclaimer: I have been a small business owner since my early 20’s and I am highly prejudice when it comes to small business.
The news will be negative for some time. The market was hit from all sides this morning. Poor reports on durable goods, new jobless claims and new home sales was reason enough to give back all of yesterday’s gains and then some. Tomorrow we get the GDP report, which economists believe will show a contraction of 5.4%. Today was a double bar reversal and the big down day that was referred to last night, after having the index put/call ratio below 1.0 for 4 days. (see chart below) No follow thru from the bulls and now we see if any downside follow thru occurs. This market is about as choppy as one could ask for. How to survive this choppy action? Do not chase stocks and prefer to buy or sell only on false side breakouts near resistance and support areas. Also, look to be nimble on taking profits as follow thru is very minimal.
News that the Obama administration is considering a "bad bank" program caught many market players by surprise and we saw a sharp gap of 2% higher to start the day. According to Jason at Sentiment Trader, we never have seen a 2% gap on a FED day, ever.The market is trying to welcome the government’s actions, however, all during this bear market, the celebrated actions have been short lived. We’ll see if bulls can follow up today’s action. A few technical’s that are bothersome is the Put/Call ratio. It is not an indicator I look at often, but there are some levels that will peak my attention. One is when the index put/call ratio dips below 1. Recently it has done a good job forecasting within a day or two a big down day. We are now 3 days at or below the 1.0 level. Upside volume was 88% today and has sent the MA back into overbought levels. (See chart B) A sign of a strong market is ability to rally in face of overbought conditions or at least hold its gains. We have regained the 850 level, it will be nice if we can sustain above it.
The FED announcement is tomorrow and there is no surprise for interest rates. All eyes will be on the statement made. Today the market traded range bound and created an inside day on the SP500.Paper Products, Semis and banks were the stronger sectors as Airlines, Gold and Retail were the weakest sectors.Consumer confidence fell to its lowest level on record. This morning’s Case-Shiller numbers indicated that the accelerating and steepening decline in home prices (deflation) continues. The Composite 10 fell 19.1% from one year ago, while the Composite 20 fell 18.2%. With more and more foreclosures coming to market, some of the percentage declines in areas in the US are truly staggering. Phoenix -32.9%; Las Vegas -31.6% and San Francisco -30.8