“who would have thought the old man to have had so much blood in him?”
– Macbeth, William Shakespeare
Did you see that late surge ? Bulls are alive! Reversal Day!
But was it? We have had so many reversal days I have lost count. Could it be the shorts, covering before the weekend to enjoy the money they made in a week of heavy bleeding by bulls? Why bother to stick around and worry what crooked rumor of a plan by this inept character, or that, might circulate the globe over the weekend?
Whatever that late surge was, it provided a perfect trade on the long side.
Notice the diagonal formation into the lows of the day, and then the breakout. Not a bad way to end a very good week of trading. You think I am the only one who sees chart formations? All it takes to get millions of technicians into action is the first push.
Despite the miraculously positive close, market action was negative for most of the day. Breadth was poor.
There are divergences being built. On lower frame, these divergences have caused bounces off oversold levels, and they have been sold. This is very classic bottoming process. One thing I have noticed these past days is that we have not really seen a sudden surge in the future markets out of nowhere.
The last time I noticed such activity was on February 27. Every attempt to prop the market was sold on that day. That was, IMO, market’s way of telling those future-propping agents to get lost.
And they got lost.
And the orderly demise began.
On February 27, I wrote
Buyers, whoever they were, were overwhelmed by sellers all day long.
But there was no palpable panic or sense of urgency to get out, some were buying and some were selling, and selling pressure was heavier.
Maybe it’s different this time and the drop ends without a bang (aka capitulation).
Maybe the capitulation has already happened, and all we are left with is program trading among some super funds.
Many attempts were made during the day to prop the market. At some point, DOW ran from -150 or so to plus 10 against very poor breadth :-!!!!???
It of course was knocked back again by sellers. Do you honestly believe that it ran like that because suddenly there were all these genuine value seekers buying DOW components? Who knows? The curious thing is that it was all orderly.
I like to know how many other observers understood the nature of what happened on that day as early as that. Yes, I am proud of my observation, and my account balance is thanking me for it every second nowadays.
After that, it was left to the market to find its area of the bottom. When the market’s ready, the future-proppers can re-appear to shake things and get the starter rally going.
I am not calling a bottom here. I am just explaining a natural gradual process. Was the late Friday action a kick start? I don’t know. All I know is that this is a bear market, and it is up to the bulls to prove that they are worth my attention.
But that does not mean that I should squander profits. This late in the game, I should start thinking of plans to tidy things up, and look around and see what I might be interested if the bulls are indeed alive and capitalized enough to stage a show.
OK, enough chewing the past and being afraid of the future. Let’s see where we are now.
How about we take a look at the bigger picture?
Well, I guess there is little wonder that the screaming face of the bubble-paganda machine is calling for DOW in mid 5000 range.
Just remember that as wrong as these bubble heads were realising the nature of the bear, and as wrong as they were calling bottom after bottom, they may be wrong now, or they may be right, but why should we care? They probably did something similar to what I did here, made some technical computation or theoretical targets that any decent technical analysis book will tell you how to do, put on their expensive ties, went on camera and tried to look smart.
We should be smart. We should not corner ourselves into a theoretical area. We should treat all technical and theoretical projections as what they are, and pay attention to price, trend and breadth first, and momentum and sentiment next, and non-confirming sectors and industries after that. That is the order of significance that has worked for me. Others may have different ideas.
This is 60-minute view.
Positive divergences so far have only produced meagre bounces. But the fact they have formed in abundance is a positive development. The fact that they are now showing up in larger time frames is a good thing too. But, still, short term trend is down. Mid-term trend is down. And long term trend is down.
Trends changes are gradual things, starting from smaller time frames and seeping into larger ones. Charts are usually better at telling the market's story than bubble-paganda machines.
If you have not seen Jon Stewart’s piece on bubble masters, here it is, take a moment, treat yourself to a fine piece by a fine master of satire.
Food for thought:
Breakdown happened on Friday, The 13th, yesterday’s intraday low was 666 – and change ;-)
Enough joking around! Have a nice weekend :-)