Market Monitor | stockbee

5/25/2007

Market Monitor

  • Dip buyers exhaust themselves. Yet another weak day was bid up early morning and then buyers exhausted themselves and market reversed. A textbook case of how momentum suddenly turns and risk of trading momentum. If you are not careful you can end up giving up lot of open profits.
  • Is this start of something big or mere garden variety congestion in a rally which did not have a correction on the way. We will know if we find 4-5 days in next 10 days where the 4% bearish readings exceed 200. Most of the time down moves are characterized by back to back high readings on 4% bearish. Usually in a down move there is rush to get out.
  • Good things about corrections is it produces ideal set ups in strong stocks. So after few weeks of weakness, the breakouts from IBD 200 and Double Trouble will have the characteristics one looks for a near term weakness in strong trend.
  • Interesting thing to watch would be the reason offered by market commentators and press for the drop. Very few would say the market just needed some rest.

Later : Buying exhaustion and selling exhaustion... and a book on technical analysis which will make you think differently.......

4 comments:

Bill said...

If it sold off *only* because "it needed a rest," then why is there so little correlation between the hottest industries over the previous 40 days, and the biggest selloffs over the last two days?

The same situation occurred in the foreign markets, where there is not a lot of correlation with biggest prior gains and sell offs.

Semiconducters, consumer electronics, and software sold off hard, but weren't in the top gainers over the prior 40 days.

Similarly, of the top 5 foreign market gainers over the previous 40 days, only 2 were in the top 5 selloffs in the last two days. The top seller was only the sixth biggest prior gainer.

SOMETHING else is going on. Not sure what it is, but I think saying "it needed a rest" is an incomplete explanation.

Pradeep Bonde said...

I have observe few things by looking at 4% up movers and down movers everyday for many months. When market rallies, lagging stocks idle near their low or have weak up moves, when sell off or corrections happen, the laggards get more affected.

Semsons said...

Pradeep,
according to that following the hottest momentum stocks/sectors would be great even for correction. However I the tech bubble showed the opposite.

BTW do you distinguish somehow between "healty momentum" and "bubble momentum"?

Pradeep Bonde said...

At the end all trends end The tech stocks had several quarters of up moves before they turned. During that time there were many correction.
During this move the Steel stocks, metal stocks, oil stocks, have had continuous rallies for now around 5 years.

I don't think currently there is bubble momentum. For bubble momentum the reading on 100% plus would be upwards of 2000 or more. This market has struggled to break 450 level for over year.

The only bubble I see for last five years is in people calling the market move a bubble. That bubble continues to grow.