No real panic

We're not seeing capitulation. We are likely to see dip buying. There is no real panic in this market. So this is unlikely to be ultimate bottom. A sheer panic kind of action is buyable. This action is not panicky. Again and again buyers in this market have jumped to buy weakness. So a reflex bounce is a possibility here. The pain might continue longer in absence of more fear and panic.

Volatile Market Action Continues

Market Monitor: Bearish.

• The overriding theme in this market for sometime has been the credit crunch. The bailout package may help alleviate that concern for sometime.
• All the major magazines in recent weeks have been very bearish. Which is a bullish sign.
• The number of 300 plus days in Market Monitor are up significantly in last few weeks indicating high volatility.
• The earnings season will start in earnest in few weeks time and that will become market focus.
• Current market conditions are not ideal for swing trading. This is currently day trading market.

Hang the shorts

Lot of traders and commentators are reacting to the ban on short selling as if , it is something new. But if you study market history, this kind of reaction to short sellers is nothing new. After a panic and stock decline , there is a search for scapegoats and shorts are easy targets.
Shorts were at receiving end after the 1929 crash and public sentiment was against short sellers for years. Similarly in market across the globe from time to time short selling becomes the favorite whipping tool of regulators and politicians. At emotional level to common man it is such a simple story to sell. Shorts brought down the market or shorts lead to collapse of this company. Shorts are evil, unpatriotic, anti capitalist and so on s a easy message to sell to the public.
Market history is full of periods where the public cries out loud aided by politicians "hang the shorts".

The bullish reversal

• Market was overextendeed to downside.
• There was panic and fear
• Short selling has been banned in UK and in USA (partially)
• The full might of the govt and regulator wanted the market slide to reverse

So we had a good reversal after some very volatile action yesterday. Final count over 1851 stocks were up 4% plus on higher volume than a day before. This strength should continue for few weeks.

Constructive action

It was very constructive action towards a probable bounce in near future developing. In the morning, the dip buyers did not jump in as was the case on Monday and Tuesday. The complete lack of interest in buying the open was first sign of what was to follow. The investment bankers got taken to the cleaners.
There was some attempt at bounce at around 2.30 and at one time it looked like again we will have same problem, no fear and dip buyers just buying any weakness. But in the last 30-40 minutes they got pounded and we ended at low. Which is the kind of action which is encouraging. You want more selling, more panic and absence of dip buying.

In spite of the selling in last 3 days, the indicators I monitor are not really in extreme territory. The Worden T2108 is at 15. The primary indicators on Market Monitor have not yet reached extreme territory. So this action is good but more of this kind of action would set us up for a tradable 2-3 month bounce.

Notable Breakouts

AMGN,Amgen Inc (Google Yahoo Earnings Chart)
CB,Chubb Corp (Google Yahoo Earnings Chart)
LGND,Ligand Pharmaceuticals B (Google Yahoo Earnings Chart)
MET,Metlife Inc (Google Yahoo Earnings Chart)
MRH,Montpelier Re (Google Yahoo Earnings Chart)
SAP,Sap Ag Ads (Google Yahoo Earnings Chart)
TRV,The Travelers Companies` Inc. (Google Yahoo Earnings Chart)
WRB,W.R. Berkley Corporation (Google Yahoo Earnings Chart)

Not real panic

In last tow days while the news looked horrible, the tape never looked panicky. Buyers were chasing any weakness. Yesterday morning itself it looked very clear that there was bid in the market and many big participants in market had access to information which was not yet public. That ultimately resulted in a very wild, rumor driven session. Final score to bulls.

Irrespective of the external noise, if you look at Market Monitor indicators. While the primary indicators are bearish , the secondary indicators are bullish and in the next 1-2 week time frame the market has bullish bias.

In an ideal world we would have liked the market to panic more, the MM indicators to have reached extreme and then the market reverse. That would have been enormously positive for a healthy 3-4 month rally. But we have to deal with what we got.

Generally post Fed for a day or two there is lot of volatility and then clear trend emerges. As of now clearly the financial are the focus and bulk of action is concentrated in all kinds of banks and insurers. Those are the sectors which saw broad based buying yesterday.

Panic and bounce post Sept 11 2001

Slow motion sell off

It was very systematic, slow motion sell off. It never looked panicky. In panicky sell off you see waves and waves of selling. So there is blood , but not enough.

Lot of talk about 9/11 sell off comparison. In that case after 4-5 days of selling, there was a spectacular bounce lasting months. So if selling persists for another 3-4 days it will be very bullish. I am beginning to turn a bit bullish and looking to deploy cash if there is more blood.

Tomorrow is Fed meeting day so expect lot of volatility.

The panic is back

Periodically market goes through panic phases. Such panic is often caused by news events and overreaction. But once the dust settle downs, few months post panics market have higher probability of being up than down. So panic is good.

Let there be more panic, more fear.We have not really seen blood on street for many days now. You want series of days of panicky selling. You want bears and perma bears dancing on the street in glee. You want hopelessness. That is good for subsequent rebound.

Currently market is in bearish phase but not at extreme readings.

T2108- % of Stock above 40 day PMA: Worden software has this indicator. It is currently at 36.95. That kind of readings do not indicate panic. Readings below 20 are very bullish. Panic means readings below 10 on this.

Market Monitor: My proprietary market timing system has been in bearish territory, but none of the readings are in extreme territory , which invariably lead to reflex bounce. We will see by end of day how much damage the panicky selling does to the readings.

So let there be more panic.

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