We we have a real meltdown on our hands. A shit storm for sure. I was stopped out of most of my swing trades today and have shorted the market to cover what else I'm holding when the SPI re-opened for the night session. The short is already well into the money.And I'm tempted to cover and lock something green into the books for today!
Boy what a mess.
OK. My bags are full of all kinds of stocks and in danger of being stopped out on Monday. Watch the close across Asia. So far so good. Japa's and Korea have made lows in the first 5 minutes and trying to push higher. Now we need the crazy nutters in Hong Kong to have a good washout then run higher to set up a bit of buying for Europe's open.
Boy is this on the mark. Its a quote from some old timer I read here. I will be topping up some more today and I don't want to!
Something to watch over the next couple of days and read carefully this is important. Reversals of big down trends don't start in the US. They start in Asia and mostly in our market. Have a look back at the big reversal days June 06, August last year they started in the Asian markets after a big nasty night in the US. It may not be today but keep an eye out and a buy button ready because it happens more often than not.
Well nothing much ever changes it seems. We are in deep oversold territory. Again! Yet not nearly as oversold as I would like but I rarely get what I like in this game. So I have decided to dip the toe in for some longer term plays. How long? Well if it all goes bad in the next 3 or so days I will still hold unless it get filthy but I see a run back up to the 20 day moving averages on the Index chart at least. That could be 200 to 300 points higher than yesterdays close. Or a rebound up to the 0 level on the above momentum oscillator. I not getting everything today,I will leave some if we dip lower this week but if we don't I will still have a bit on for the ride.
It was interesting yesterday as the rest of our Asian friends were going green and pushing higher that the little old SPI showed no interest in such fun. And the over night session has only just managed to close above yesterdays high although the US was up better than 1%. It seems that this over-sold rally that is happening all over the place is not interesting anyone here. As I was noting yesterday that yes we are over-sold but it just seems we are going to need MORE over-sold to get us in a place to mount a meaningful rally. Oh and does anyone think that the commodities are looking a little toppy? I'm thinking that one good scenario is a really nasty hit to gold, oil, wheat and the like then we will get to that MORE over-sold area. If not well we may just have another mini rally that fails to set a new high.
Its not going to be that happy of a start to the new year for many a punter. Today will be my first day back at the trading screens like many others and its going to be a nasty old day. And I would think just another step up on the fear ladder for most. The thing I am thinking about is that technically we have been getting weaker and weaker all of last year and really turning shitty in the last two months. Apart from the lack of participants in the rises all year we managed to set a lower high and then a lower low in the last weeks of December. With a good chance of the August 07 implosion repeating over the next week. The mood during December turned very poor with everyone letting go of the US economy like a rotten bit of road kill. There is still many believing/hoping in China and India and thats fair enough, it has paid handsomely for some time. But that is worrying me too. To many doing the same thing is a recipe for pain. As this is my first hour back at the desk things are a bit hazy but I have a plan already for the year ahead. Buy the rips lower, sell the pushes higher. I just don't buy the end of the financial world crap from the pessimist but I do recognizes that things have changed enough to not expect the straight up run will continue. I see the next couple of months playing out perfectly for my trading style, lots of ups and downs and lots of traders chasing last nights action from the States. My plan will be to be on the other side of their trades.
Have a look at this. Quite amazing. The 10 day average of the advancing stocks minus the declining stocks. We have just tested the lows of the August implosion! The pattern that I talked about four post ago here has now completed and its an ugly sight. Again I'm talking about the same thing a couple of big caps are masking the mess and weakness of the market. The Bull market is now confined to a select few sectors and it seems that this is ever reducing on every push up. Have a look at the sloping trend lines. Same old thing. We get a meltdown then an over soldrally then each push after that less and less rally. Until the next meltdown comes and looking at this chart they have been getting closer and closer.
The only positive thing you can read from this is we are in serious oversold territory and a big rally is on the cards. Maybe a test of highs but bugger me! If a bull run is riding oversold rallies is that really a Bull market. Think about this. If most stocks have no momentum is that a Bull market?
Something happened yesterday that I am struggling to find an incident where it has been repeated in the last 4 years. Sure we have had plenty of nasty days in four year bull run thats not what I'm talking about. What happened yesterday is the first occurrence of a lower high followed by a lower low. The first in 4 years!
We have had falls with some churning and dead cat bounces followed by more falls and new lows but not this kind of up trend that fizzled out. The last leg up started with a low on the 22nd of November and reached a high on the 11th of December but it didn't get close to testing the previous highs let alone setting new highs before it turned around. So that is a lower high, a very rare event in the last four years. Then bugger me we get the day from hell, if you are long that is, that takes out the last low. At the moment this could all be repaired in a week or to with a little bit of magic rally dust from Santa but its yet another sign that times are a changin'
This is it. This is what it looks like at the end. This is what happens at the end of a broad bull run lasting close to five years. This is what we have all feared, the end of the good times. The just throw a line or two into the market and watch it land a winner. Well it is over. And what do we get in its place? Have a look at the chart below. It is the 10 day average of the advancing stocks minus the declining stocks.
This is telling me the same thing as the new high charts I posted last week. We are just not running hard anymore. The rallies on the indexes are looking good only because of a couple of big Caps. Have a look at the highs I have marked at A, B and C. What they have in common is that they were set after a meltdown. They were oversold rallies and very powerful ones but that has been it. No follow through at all. Every rally after that high has been weaker and weaker until we get another meltdown. And then the pattern starts again. In a healthy market after a rally into overbought territory from oversold condition you would expect the market to roll over, work off the overbought condition by putting in a lower low then retesting the first rally reading if not pushing to new highs. But as you can see with the sloping trend lines we are just getting lower highs. All the time the XAO/XJO is pushing to new highs. This is negative divergence. Big time. The 20% odd return this year is bullshit. BHP, CBA, WOW and friends are confusing you if you think we are still in a ripping bull run. Less and less are participating in this run. If you are a index trader you don't have to give a toss but if you are a stock picker your job is getting harder. The current pattern is of course not finished playing out. As we need to retest the meltdown lows with another one without putting a high reading up around 150 for this pattern to hold but so far this rally is still confined to a select few participants. Far too few for me to change my mind about the call that we are heading into a stop start, zig zag market. As for todays little disappointment plunge we will see a couple of days out whether that is it for now but I'm still thinking a good run up to X-mas is yet to play out. It may just start a bit lower from here.
This chart has been worrying me all year. It is signaling a tied old bull market. A market that has been going higher on a smaller and smaller amount of stocks. At the end of last year we were getting healthy advancers by a broad bunch of stocks from many sectors. Just the way a healthy market acts and one that is pretty easy to play. You just need to throw some money out there and you will catch a few winners. But what we have had this year is pretty worrying. The leadership group is getting smaller and smaller. More and more stocks are going nowhere. And as we approach the end of the year it seems that although we will set another double digit gain all is not well. The gains this year in the indices are thanks to a few big caps (BHP, RIO, CBA, WOW etc.) but under that most stocks have been going sideways. And this I believe is about to teach many a market reality lesson. When you get markets that make broad advances its easy to believe that you are good at this game. You get lucky with some spectacular stocks and you forget about the nasty draw downs that happen from time to time and even tell yourself that you have learnt from them and you will handle them better. In your head you have the mid-cap miner that made you a 300 % gain and have already discounted all the losses in your mind and the P/L you never look at.
Now all the momentum players are piling into the fewer and fewer strong stocks, as you should as they are the only ones going up, just like moths to the flame. People that are using highly leveraged techniques with poor risk management and little skill (retail CFD accounts, Margin loans, Option strategies taught during a weekend course, SMSF) that have worked during a full on market advance are now getting bottle necked into a handful of momentum plays. They will continue to play this game pushing fewer and fewer stocks higher but the money now is in a different game. Well I believe it is.
One that is buying low and selling a bit higher and then shorting and then covering a bit lower then starting again. Most will not realize that the run we have had from 2003 to the start of this year has been a very special move that is probably over. If they continue to play with the same tactics as the market signals changing times the highly leveraged games will hurt, but probably by the time they realize or are stopped from 'playing the market' by their wives it will have changed again. Ready to suck new punters in. Unless this chart can print some healthy highs my tactic has changed from being a market moth to fading every move. I am expecting to see zig zags on charts from here not straight lines.
