Market Monitor

Market rebounded from 2 days weakness. For last seven trading days the market has essentially remained at same level. During that time some stocks which were overextended have corrected. New stocks have been breaking out and taking on fresh leadership.

If you look at the Market Monitor closely, you will notice how the overextended phase slowly is getting worked out in to slow momentum pause. Look at the 50 plus numbers, down to 21 from high of 36. The stocks up 25% plus is down to 155 from high of 288. No one expected the market to go up straight. Such high momentum levels are not sustainable for long under normal market conditions.

When such momentum phase slows down, most important thing is to keep your perspective. In the last 5 days , you would have seen several people calling for crash, some anticipating melt down due to option expiration, some getting scared due to October 87 anniversary, some touting macro economic pet theories hoping for down move. There is never a shortage of people calling for 50% drop in the market. In the absence of a well thought out framework, any of these things sound appealing. But if you have a methodology, you can shut off all such market noise.

If you saw when in July Market Monitor indicated start of a down move, there were enough bulls wishing for rebound. There were people saying buy the dips little realizing a fundamental change in market characteristics. Market Monitor signaled the end of bullish phase and start of bearish phase on 7/26/2007.

Whatever framework you use for deciding on market direction should be logical and well thought out based on research. Otherwise you get tempted to react to market's everyday moves with emotions. Before you start listening to anyone who claims market is going to go down 50%in a year, look at market history to see how many times that has happened, what is the probability of that. Such idiotic predictions and market noise is constant feature of market. Methodology helps shut out such noise.

At current level as long as the 65 days ratio is positive with 1311/560 readings, all corrections are buy opportunities. When the market starts deteriorating it will show in Market Monitor in several indicators.