In the short term the low volume holiday environment is bullish and with one of the indicator (stocks up 50% plus in month at 2) showing possible strength around, we will likely see strength. The market is ideal environment for day traders and short term traders. Nimbleness is the key.
With Nasdaq showing strength the post holiday action might offer some opportunities for light commitments in technology sector. Number of stocks in the sector are showing relative strength, but again most of them are in the large cap technology area. However if the overall market gets in to downswing, much of this pocket of momentum in technology sector will not be able to sustain its up move.
After day before yesterdays weakness a retest of high was what I was expecting , but not so fast. The market opened in green and stayed that way and accelerated post 2 p.m. on news of Fed Chairman's letter. Technology was leading the way. INTC the tech bellwether had 4% plus breakout yesterday. Expecting this strength to not carry through much and we are likely to have a pullback from this level.
Market is in confirmed correction phase as per Market Monitor. The entire idea behind Market Monitor is to avoid risky , volatile period and trade during safe, less volatile periods. All such periods are ultimately followed by less volatile more predictable periods. More than that the profit one can make during the safe period can compensate for staying out during such period.
The last Friday action was spooky and unexpected. A rally when 65 days bull/bear ratio is negative is always a tactical play. Probability of it failing or retracing is always higher. The market has behaved as per that script so far.
Many headlines were attributing the sell off to Fed meting minutes. But I don't see that as consequential. The market was technically due for pullback and that is what happened. Low volume on this move makes it tricky and by end of week, we might rally back in to recent high.
Gerard Baker in TimesOnline sums up nicely the last months action:
Was that it? Can it really be that the violent storm that broke over financial markets this month has turned out to have been no more than a bit of noisy huffing and puffing, an empty squall that blew over at the first sign of a response from central banks? Have the excitable gloom-mongers in the media and parts of the financial markets once again been denied their Apocalypse?
There have certainly been encouraging signs in the past few trading days that, over here in the United States, markets are reverting to a sort of normality. Equities have shaken off the doldrums.
After a strong week, the Dow Jones is 6 per cent above where it started the year and only 5 per cent off its July peak.
Having spent much of the past two weeks bouncing around like a bungee jumper on a thin rubber band, US Treasury markets look comparatively becalmed – the yield on three-month Treasury bills has bounced back up from its low of below 3 per cent last week to a more normal looking 4.5 per cent.
In the interbank credit market, anecdotal evidence suggests that the August panic is giving way to a late-summer calm. Those nasty rumours about imminent bank failures – featuring, in the UK, names such as Northern Rock and, in the US, Countrywide – have dried up. The weird things that were going on in the interbank market two weeks ago – with overnight lending rates shooting up and down in an unprecedented way – have disappeared.
It is tempting for those of us who never signed on to the “sky is falling” hysteria to crow at the sheer dullness of it all.
But in truth even I did not think that it could really blow over this quickly. What kind of a crisis was that?
Central banks step up their overnight repos, the Fed cuts a largely symbolic, as opposed to a real, interest rate and a few big-swinging, money-centre banks make a very public appearance at the discount window, and that is it?
- Market continues to be in confirmed correction phase as per 65 days ratio.
- Market had a pullback on extremely light volume. With most market participants on holiday, it will be tricky market. Most of the action will be choppy and on low volume.
- China stocks were the star, they have been on tear since the end of down move.
- Patience is the key at this stage. Markets will set themselves for sustainable move only post holiday.
- Market had a surprisingly strong action on Friday. This week is holiday shortened week plus last week of summer, so thin volume will likely move the market higher in near term time frame.
- 65 days bullish/bearish ration continues to show market in confirmed downtrend. Rallies during such period have high probability of failure.
- In seven days market has rebounded vigorously and now is back within a few percent of recent high. Panics are always good buy opportunities as long as you do not get sucked in by all the doom and gloom talk during such panics.
- Stocks which were not dented by the panic are now starting to breakout, the early part of the bounce was driven by heavily shorted stocks. This bounce is also setting up some potential shorts, as number of stocks are consolidating near their low or rallying on low volume.
Goldman Sachs Group Inc.'s Global Equity Opportunities hedge fund rose 12 percent last week after the securities firm shored up the money-losing pool with $3 billion of cash, investors said.
Assets more than doubled to $7.5 billion as New York-based Goldman put $2 billion into the fund and raised $1 billion from investors including Maurice ``Hank'' Greenberg, the former chairman of American International Group Inc., and billionaire Eli Broad. The fund lost about 30 percent in early August as rising mortgage defaults caused stocks to tumble, upending the computer models its managers use to select trades.
Global Equity and other so-called quantitative funds rebounded as market turmoil eased, said the investors, who asked not to be identified because the Goldman fund's performance is private. James Simons's $29 billion Renaissance Institutional Equities Fund made up almost the entire 8.7 percent decline it suffered in the first eight trading days of August, investors said.
Keeping calm during market correction is very important. Most immediate analysis about market corrections is often faulty and no more than just fear mongering by perma bears. See my previous post about this here.
As the market attempts to stabilize here, my vacation is getting over and after sitting in cash through the entire turmoil, I will be back in USA by midweek. Updates will be infrequent as I am currently in transit.
Going by the emails and comments, one can make out how the emotions played during the day.I was fast asplep during the entire drama and was reading the report early morning. I suspect the intra day 65 day ratio reached extreme levels of 1600/200 yesterday by mid day. Many people were convinced there will be no bounce.
Those who kept their nerves caught the turn. This kind of game is for extremely nimble players. If you are asking what to buy now, you should just stand aside and watch the fun. You should have kept the buy list ready in anticipation much in advance. Such bounce in first phase invariably have the most oversold falling knives bouncing back.Heavily shorted stuff with extremely negative sentiment will bounce back 10% plus in a matter of hours in such bounce.
Such bounce have certain common characters: panic, series of bad news, bears dancing on the street, perma bears on first page of popular sites claiming what you have seen is just trailer and there is more downside ahead, break of some technical level like 200 day MA, high volume selling, and capitulation by many players. Traps in market are always at levels where majority will get trapped.
Expecting the bounce to play itself out for couple of days.
For the first time in this correction we are witnessing good selling and some washouts. The stocks down 25% plus in 65 days has quickly climbed to 1183 after making an attempt to stabilize at 800 area. The stocks up 100% plus is also witnessing deterioration. All these things are good as this can drive the market down to levels from where a multi month rally can develop.
I have been looking at stocks which have demonstrated superior relative strength during the sell off and there are many candidates which are just clinging to the top of their range. They also have excellent earnings and sales growth and they are just waiting for the volatility to decrease.
This week TV channels were running a story of a daring day light robbery caught on CCTV in a jewelery shop in Bangalore. The footage showed 5 armed men entering the shop and pushing the employees and customer in a room and coolly walking away with all the jewellery in the shop.Out here in Pune where I am currently based there has been over 23 jewellery shop robberies in last one year according to the local newspaper.
Residential robberies are also a major problem. Most home owners are scared of robberies and break ins. According to the weekend newspaper here most housing colonies are hiring armed guards and in many areas local citizens have set up voluntary night vigils to prevent crime.
Two popular items with robbers are mobile phones and laptops. There have been number of cases since I came here of motorist being stopped at gun point on isolated spots on highways and asked to handover mobile phone and laptop. The highway connecting the city to the IT parks out here seems to be easy target for criminals.
Traditionally Pune was a calm, sleepy city with extremely low crime rate. Greater economic prosperity has made crime a high paying enterprise.
While the market is volatile, there is lot of noise in the environment. There are number of views, editorials and other opinions and judgments being passed around by various market participants and market observers. Much of it is misinformation or propaganda. This is all noise. It will take six months or year for us to understand what actually happened. What you read currently is mostly speculation and gossip by motivated players. Much of what is being passed on as erudite commentary will prove to be far from the actual truth once the details about the crisis and panic come out. Remember all you are reading as of now is from the outsiders perspective. The insiders who really were in thick of the things and who really managed and gained or lost billions have not yet spoken.
The outsiders who are commenting are flying lot of kites. Some are failed hedge fund managers or marginal players in the industry , who never managed large pools of money, they are obviously tooting their drum. Some are publicity whores, who are constant presence on CNBC, WSJ, Barron's or Bloomberg and pretend to offer erudite opinion on every topic. Some are perma bears who are gloating because after predicting doom and gloom for several years day in and day out, finally for few hours they are partially right.
Lot of this noise is self contradictory and not based on logic. Lot of it is pure emotion and jealousy. From a trading point of view all such noise is of no use. The markets were due for correction. They are correcting currently. There have been corrections before this in this rally. But overall there have been higher highs and market has kept its uptrend intact. So as far as I am concerned sticking to methodology is more critical than getting swayed by noise.
What determines the value of a stock? Earnings, quarterly and annually. Current results and profit expected a year from now. These are the driving forces behind a stock.
True, the CAN SLIM model tells us to look for a recognizable base pattern, and to gauge volume against price action, and to track how many high-quality funds own the stock.
Watch that 10-week moving average. Are there too many stock splits? What is so special about Baidu's (BIDU) product that would make its stock fly?
But the bottom line is the bottom line.
Here's what you want to see in a company's profit record. Quarterly earnings gains of at least 25% over its year-earlier comparison. The higher the better. You don't want to see any profit shrinkage in recent quarters.
Slightly below-par results may be acceptable if they're moving in the right direction. For instance, a 20% gain in quarterly earnings doesn't look so hot.
But if it comes after a string of results that look like 3%, 8% and 15%, then the company is accelerating its earnings growth. If earnings growth is moving in the right direction, often the stock's price will follow.
Ideally, you want both fat numbers and acceleration. But be warned, that's a tall order.
Now look at annual earnings. The most recent full-year profit also should be at least 25% higher than the previous year. The three-year earnings growth average should come in at no less than 20%.
Which direction are the annual profit growth rates going? Just like the quarterly results, you want to see improvement from year to year. Any significant year-to-year earnings decline would be a big problem for a stock.
Too often, a stock that looks like a leader shows a big flaw in its annual profit growth.
Such a stock still could have great quarterly numbers, but one can easily end up buying a high-profile winner just as it's cooling off. Keep that big picture in mind.
Market corrections like the one we are currently witnessing are good time to focus on such stocks. These stocks withstand such corrections. Even if they pullback, they do it reluctantly. Most of the chart patterns which IBD talks about form during such market correction. When the weight of the market correction is lifted from such stocks, they just bolt out.
Panic and fear is very good for markets. Panicky markets can turn on a dime. Some years back I had documented , every single 10% plus correction in market for last 30 to 40 years. I still have those notes in my files somewhere in USA. If you study all the panicky disruptive moves in market during various crisis you will see such moves resolve to upside with great force. Most panicky moves are followed by ferocious rallies, those rallies retest their bottom but after many weeks or months. Protracted downturns are less volatile and have systematic distribution with slow methodical selling.
From a more trading dynamics term, in my opinion and observation , in times of panic stocks go down due to absence of bids. The absence of bids forces sellers to aggressively bring down offers. You will realize this if you try and close a long position in panicky market. Once the panic subsides normal bid-ask behavior returns and hence the ferocious rallies.
As I have said before any market turn will be a process. If you want to play safe, best option is to wait for 65 days ratio to turn. When that ratio is in green all breakout based strategies have very high probability of success. In spite of the down move today, the 1000 plus breakout day still holds and it is time to anticipate turn to upside rather than chase the move to downside. For all the emotions around this move, this is just a 10% correction so far after multi year up move. Ignore the news look at the Market Monitor numbers.
Worst thing you can do during market correction is to listen to perma bears . All bearish scenarios and bearish propaganda sounds very logical and intelligent during market corrections. But the biggest strategic error a speculator can make is to get caught in bearish web. If you do that you will miss on next big rally. You should be tactically bearish, strategically bullish.
100 years plus of history of market clearly demonstrates triumph of optimism over pessimism. In few months time all this Armageddon talk will be just a blip. Perma bears are fools and idiots who do not understand markets and the markets statistical tendencies or want to ignore it to create a cult. Fools and idiots seldom make money in the market.
Current market is ideal for day traders and nimble swing traders. Alternatively one can use such period for R&D. The best thing to do during such time is to take a vacation, sit in cash and enjoy the fun and games from sidelines. Timing your vacation during market corrections is always good strategy.
First thing in the morning I triple checked the numbers.
1063 breakouts on upside within few days of market taking a severe beating and after 2 days of back to back 300 plus upside breakout days is really crazy action. Looks like massive asset allocation or re balancing trade. That seems to have squeezed shorts mightily.
This is pure delight for day traders.
ABBI,Abraxis Bioscience Inc (Google Yahoo Earnings Chart)
ABK,Ambac Financial Group (Google Yahoo Earnings Chart)
ABR,Arbor Realty Trust Inc (Google Yahoo Earnings Chart)
AHR,Anthracite Capital Inc (Google Yahoo Earnings Chart)
ALAB,Alabama National Bancorp (Google Yahoo Earnings Chart)
ALJ,Alon USA Energy Inc (Google Yahoo Earnings Chart)
AMSC,American Superconductor (Google Yahoo Earnings Chart)
ANH,Anworth Mtg Asset Corp (Google Yahoo Earnings Chart)
ASVI,A.S.V. Inc (Google Yahoo Earnings Chart)
AUTH,Authentec Inc (Google Yahoo Earnings Chart)
AVD,American Vanguard Corp (Google Yahoo Earnings Chart)
BARE,Bare Escentuals Inc (Google Yahoo Earnings Chart)
BBX,Bankatlantic Bancorp A (Google Yahoo Earnings Chart)
BIDU,Baidu.com Inc (Google Yahoo Earnings Chart)
BJRI,BJ's Restaurants Inc (Google Yahoo Earnings Chart)
BLKB,Blackbaud Inc (Google Yahoo Earnings Chart)
BONT,Bon-Ton Stores Inc (Google Yahoo Earnings Chart)
BOW,Bowater Inc (Google Yahoo Earnings Chart)
BRCD,Brocade Communications (Google Yahoo Earnings Chart)
BSC,Bear Stearns Companies (Google Yahoo Earnings Chart)
CCRN,Cross Country Healthcare (Google Yahoo Earnings Chart)
CGNX,Cognex Corp (Google Yahoo Earnings Chart)
CKXE,CKX Inc (Google Yahoo Earnings Chart)
CMRG,Casual Male Retail Grp Inc (Google Yahoo Earnings Chart)
COCO,Corinthian Colleges Inc (Google Yahoo Earnings Chart)
CPHD,Cepheid (Google Yahoo Earnings Chart)
CRZ,Crystal River Capital Inc (Google Yahoo Earnings Chart)
CRZO,Carrizo Oil & Gas Inc (Google Yahoo Earnings Chart)
CSGP,Costar Group Inc (Google Yahoo Earnings Chart)
CVBF,Cvb Financial Corp (Google Yahoo Earnings Chart)
CYBX,Cyberonics Inc (Google Yahoo Earnings Chart)
DFR,Deerfield Triarc Capital Corp (Google Yahoo Earnings Chart)
DXCM,DexCom Inc (Google Yahoo Earnings Chart)
ENER,Energy Conversn Devices (Google Yahoo Earnings Chart)
ENOC,Enernoc Inc (Google Yahoo Earnings Chart)
ESLR,Evergreen Solar Inc (Google Yahoo Earnings Chart)
FCF,First Commonwealth Finl (Google Yahoo Earnings Chart)
FLOW,Flow International Corp (Google Yahoo Earnings Chart)
GAIA,Gaiam Incorporated Cl A (Google Yahoo Earnings Chart)
GLDN,Golden Telecom Inc (Google Yahoo Earnings Chart)
GMCR,Green Mountain Coffee Roasters (Google Yahoo Earnings Chart)
GS,Goldman Sachs Group Inc (Google Yahoo Earnings Chart)
HANS,Hansen Natural Corp (Google Yahoo Earnings Chart)
HHGP,Hudson Highland Grp Inc W/i (Google Yahoo Earnings Chart)
HNR,Harvest Natural Resources Inc (Google Yahoo Earnings Chart)
HOV,Hovnanian Enterprises A (Google Yahoo Earnings Chart)
HSTX,Harris Stratex Network (Google Yahoo Earnings Chart)
ICOC,Ico Inc (Google Yahoo Earnings Chart)
ICTG,Ict Group Inc (Google Yahoo Earnings Chart)
ID,L-1 Identity Solutions Inc (Google Yahoo Earnings Chart)
IDA,Idacorp Inc Holding Co (Google Yahoo Earnings Chart)
IGTE,Igate Corporaion (Google Yahoo Earnings Chart)
IMB,Indymac Bancorp Inc (Google Yahoo Earnings Chart)
INSU,Insituform Technols Cl A (Google Yahoo Earnings Chart)
IRBT,iRobot Corp (Google Yahoo Earnings Chart)
ISPH,Inspire Pharmaceuticals (Google Yahoo Earnings Chart)
ISSC,Innovative Solutions (Google Yahoo Earnings Chart)
KNOL,Knology Inc (Google Yahoo Earnings Chart)
KNOT,The Knot Inc (Google Yahoo Earnings Chart)
LAB,Labranche & Co Inc (Google Yahoo Earnings Chart)
LF,Leapfrog Enterprises Inc (Google Yahoo Earnings Chart)
LGND,Ligand Pharmaceuticals B (Google Yahoo Earnings Chart)
LLNW,Limelight Network Inc (Google Yahoo Earnings Chart)
LNN,Lindsay Manufacturing Co (Google Yahoo Earnings Chart)
LXU,Lsb Industries Inc (Google Yahoo Earnings Chart)
LYV,Live Nation Inc (Google Yahoo Earnings Chart)
MATW,Matthews Internat Cp Cla (Google Yahoo Earnings Chart)
MRCY,Mercury Computer Systems (Google Yahoo Earnings Chart)
MSO,Martha Stewart Lvg Omni (Google Yahoo Earnings Chart)
MTG,Mgic Investments Corp (Google Yahoo Earnings Chart)
MTH,Meritage Homes Corp (Google Yahoo Earnings Chart)
MTMD,Microtek Medical Hldgs Inc (Google Yahoo Earnings Chart)
MXWL,Maxwell Technologies Inc (Google Yahoo Earnings Chart)
NEXC,Nexcen Brands Inc (Google Yahoo Earnings Chart)
NM,Navios Maritime Holdings Inc (Google Yahoo Earnings Chart)
NRF,Northstar Realty Finance Corp (Google Yahoo Earnings Chart)
NYNY,Empire Resorts Inc (Google Yahoo Earnings Chart)
OSIS,Osi Systems Inc (Google Yahoo Earnings Chart)
PCLN,Priceline.com Inc (Google Yahoo Earnings Chart)
PCR,Perini Corp (Google Yahoo Earnings Chart)
PLXT,Plx Technology Inc (Google Yahoo Earnings Chart)
PSEC,Prospect Street Energy Corp (Google Yahoo Earnings Chart)
PSEM,Pericom Semiconductor Cp (Google Yahoo Earnings Chart)
PSPT,Peoplesupport Inc (Google Yahoo Earnings Chart)
RAH,Ralcorp Holdings Inc (Google Yahoo Earnings Chart)
RIGL,Rigel Pharmaceuticals Inc (Google Yahoo Earnings Chart)
RMIX,U.S. Concrete Inc (Google Yahoo Earnings Chart)
RSO,Resource Capital (Google Yahoo Earnings Chart)
RSYS,Radisys Corporation (Google Yahoo Earnings Chart)
SBKC,Security Bank Corp Ga (Google Yahoo Earnings Chart)
SKY,Skyline Corp (Google Yahoo Earnings Chart)
SNMX,Senomyx Inc (Google Yahoo Earnings Chart)
SOLF,Solarfun Power Holdings Co Ltd (Google Yahoo Earnings Chart)
SPAR,Spartan Motors Inc (Google Yahoo Earnings Chart)
SPWR,SunPower Corp (Google Yahoo Earnings Chart)
SUPX,Supertex Inc (Google Yahoo Earnings Chart)
SWC,Stillwater Mining Co (Google Yahoo Earnings Chart)
SWSI,Superior Well Services Inc (Google Yahoo Earnings Chart)
SYNT,Syntel Inc (Google Yahoo Earnings Chart)
TRGL,Toreador Resources Corp (Google Yahoo Earnings Chart)
TWTC,Time Warner Telecom Inc (Google Yahoo Earnings Chart)
TXCO,Txco Resources Inc (Google Yahoo Earnings Chart)
UFPT,Ufp Technologies Inc (Google Yahoo Earnings Chart)
VCI,Valassis Communications (Google Yahoo Earnings Chart)
VLTR,Volterra Semiconductor Corp (Google Yahoo Earnings Chart)
WAL,Western Alliance Bancorporation (Google Yahoo Earnings Chart)
WCI,Wci Communities (Google Yahoo Earnings Chart)
WMG,Warner Music Group Corp (Google Yahoo Earnings Chart)
WRES,Warren Resources Inc (Google Yahoo Earnings Chart)
YGE,Yingli Green Energy Hlds Co (Google Yahoo Earnings Chart)