Friday, November 14, 2008

The Boat is Listing

Contrarians tell us that when everybody piles on to one side of a trade it is time to go the other way. The "boat" of the market listed way to the bearish side yesterday morning and it was no wonder - the news was absolutely horrible. Intel troubles, GM failing, economy faltering, credit crisis, bailouts, housing crisis, worse than expected retail sales, worse than expected job losses, and on and on.

Stocks undercut their October lows and it looked like the bottom had fallen out.

Yet in the early afternoon things suddenly turned around. Off the races! Was it short covering? A rebound after running stops?

Look at this screen capture from MarketWatch.com from this morning's newsletter. You'll prbably have to click it to read the little headlines.


I did not circle everything as I did in the newsletter but if you have a moment and some strong reading glasses peruse the entire page. Every single bit of news was bad except for the headline. Everything. OMG, the end of civilization as we know it.

And then the Dow rallies 900 points.

When everybody is on one side of the boat, go to the other side. It is a lot drier and you can see better, too.

6 comments:

Dave said...

But how do you read what happened today? Down big; recovery; then down big again?

paulocuana said...

As I remember the big bear market lows of the past nobody was looking for a bottom. The feeling was more like disgust for equities. But we had alternatives too. AT&T 20 year debt in '82 had a 20% yield to maturity.
I also find it worrisome that so many are turning bullish against this reality:
S&P 500 down 6.2% this week, down 3.9% the week before.
Maybe being a mutual fund investor keeps my head out of the clouds ; )
Just my 2 cents, nothing more.

Quick Takes Pro said...

Dave,

Clearly the afternoon selloff after the midday recovery was not helpful. But 5 up and 3 down sounds rather Fibo (fibonacci) to me and within the limits of a correction. If it gets worse Monday then I'll have to eat some crow.

Quick Takes Pro said...

paul,

I differentiate between the end of bear markets and the beginning of bulls. The latter are born out of apathy and/or disgust. The former ends on washouts and turbulence.

People will give up looking for a buy point (you can call it a bottom if you like) as the trading range chews them up.

I have seen an Elliott Wave interpretation that Oct-Nov is a ending diagonal and that means one or two lower lows but not by much. Probably just enough to scare people away.

paulocuana said...

Michael,

Thanks for the clarification. I'm really just looking for an intermediate term rally.

paulocuana said...

I thought readers might be interested to learn that Carl Swenlin has reiterated his opinion that this Oct-Nov price action is a continuation pattern leading to lower levels.

http://www.decisionpoint.com/ChartSpotliteFiles/081114_rr.html