Tuesday, January 10, 2012
the algo headfake
A concept we have discussed on this blog before is how technical analysis has changed with the flood of hfts and algo's into the market...I had one friend describe it to me this way;"its almost like the algo's digest the technical traders handbook and then intentionally push the market through important levels, only to whip it back the other way and rip your face off"..I want to keep my face where it is so as the market moved higher today(above well advertised resistance levels) i invested in some cheap options vol as protection..That being said i do think the market is poised for a leg higher for a couple of reasons..Number one on the list is that the euro appears due for an oversold bounce and ,as yet, we have not had it.. I mean, sure we had a little euro strength, but it was nothing interesting(the euro is currently down at the time of writing)...This mornings strength,in equities, can be credited to china and we know this because there was disproportionate moves higher in the aussie dollar and most of the commodity complex..Every where i turned today i heard people talking about the "buy america" trade, which i mostly agree with based on the tallest midget method of reasoning and i would be long some of the america names..However, there were some other things i liked as well for technical reasons, and the emerging market etf(eem) was high on the list...A ton of buzz today surrounding rig and the argument goes like this..The technicals look good, oil is flying, and it has been the outcast of the oil sector for a long time...On the other side of the coin, there is rumors of an impending dividend cut and there are clearly some internal problems within the organization...On balance i tend to side with the technicals and the price action because i work under the assumption that there are alot of smart people out there trading the stock, and their consensus is where the share price goes...The other night we talked about gold and since then its been on a rocket...I see no reason for that not to continue....lastly i will take the illini and the 9 points as they have the only post man in the league who can play d on sullinger...that last sentence is of no consequence to most of you guys but the game starts in 20 minutes and i gotta go claim the good tv from my daughters..."he's like soooo mean...i know right??",,,have a great night jim
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Added to my must read list everyday...great blog Jim
ReplyDeleteHi Jim. Totally agree on the headfake. Greece still unsettled, 75% haircuts chatter, no one cares. Italy bonds above 7%, Germany pays negative interest on short-term bonds this week, no one cares. Still need to get 17 governments to agree, no one cares. Germany wants no money printing, yet ECB is handing out backdoor Halloween candy, no one cares. Banks need more money from ECB than expected, no one cares. Banks parking money at the ECB in record amounts, they'd rather lose 0.75% than invest in bonds, no one cares. LIBOR keeps rising, no one cares. By my tally, nearly 50% of companies have reduced their earnings estimates now, and no one care. This makes no sense. One can argue that the low estimates means that many companies will "beat", but it just reeks of setting up for a hefty pullback. Ironically, the price action suggests sector rotation from secular to cyclicals, yet the cyclicals are the ones that are doing the vast majority of the reductions in estimates. I am itching to get Long this market, but it just doesn't add up. Look at the volume. This is not massive amounts of people piling into the markets on a sustainable bull rampage. Last Monday pop was a small amount of money coming in with positive bias (read "New Year's resolutions"), with extraordinarily low volume across the board to resist them. Today was China, plain and simple. This is setting up for another painful pullback or worse, and a much more attractive entry point. Real Life: I own a chain of cell phone stores in the Midwest. This holiday season companies (starting with WalMart) started offering deals on Thanksgiving night (reeks of desperation), the discounting was the steepest I've seen (reeks of desperation), sales volumes were fine, but margins were low. The consumers were definitely the winners, not the companies. Record Black Friday sales, poor margins. Poor sales from then until December 19th, everyone discounting, begging for business, customers waiting and only buying deals. December 20th thru 31st, strong volume, massive discounting and price matching pressure. This is what was going on out on the front lines. I've never seen anything like it in my 8 years in this business. The economy is sick, you don't just suddenly get healthy overnight.
ReplyDeleteDanno ..awesome comment love the way u write...I agree with everything you say but I believe you are missing one thing and that's the back beat of a fed that keeps pouring money into the system...asset prices could easily keep flying despite an awful global economic picture...not saying they will but its worth considering....I should stop writing cause Im 2 and a half beers in ,watching the illini...thanks and have a great night
ReplyDeleteDanno.. thats whats majority of the people thinks about this economy and this market.
ReplyDeleteA record thanksgiving sale, yet, amzn, bby, tif, urbn, lulu everybody down by 15%