Friday, July 24, 2009

Sentimental Lady

For all you Bob Welch fans, this one's for you. Still a youngin? How about Fleetwood Mac?

Sentiment is a wonderful tool these days. Certainly, charting is going a bit awry as the failed head-and-shoulders - before this 9% rally - proves. But while traditional chart reading - as in sell the breakdown, collect profits - was ferblungen (that's a technical term) those who took the pulse of the marketplace were ready to go.

Yes, even Mikey the Bear (that's me) was looking for a bounce. No, not 9% but something. I was not fooled by the head-and-shoulders everyone and his dog was talking about. Did I mention this in the blog that Mark Haines was grilling every guest - and I mean even the fundie guys - if they were watching the pattern.

What everyone knows is not worth knowing (Old Wall Street lore).

Today, everyone was waiting for the correction that surely was due. After all, the Naz was up 12 straight days. I remember a rule of thumb I used back in the bubble days when I bought a stock for a dead cat bounce after 10 down days in a row. You'll never guess my favorite winner back then - Enron! That pig was heading for the barbecue and I made money on the long side with an overnight trade.

Good thing I did not try that this week. I'd be the one on the spit, slowly turning, turning, turning over the flames.

These days, everyone seem to be hip to those old little tricks and naturally they do not work. Fade the Nasdaq? It did not work at 10. It did not work at 11. And it did not work at 12 although there is a little day left to go.

Sentiment was too bearish. No, not the VIX or the AAII survey. These things are also getting overused and are under effective.

But that is short-term stuff. Thursday was a demoralizing day for the bears so while I think today's timing was off I can feel the capitulation building.

Oh, and Sentimental Lady was a song by Bob Welch in the 70s and again by Fleetwood Mac (with Welch in the band pre-Buckingham-Nicks) not long thereafter.


Mark said...

Michael I would be interested in your opinion of the S&P 500 using weekly data. When the data is culled this way (using just a line graph with close data), you end up with a perfect sized reverse head and shoulders pattern that is exactly the same width (about 10 months) as we saw in 2002-2003. Moreover, and more importantly, when using weekly data, the resistance level in 2002-2003 was 965 which held for 10 months (the close set during the week of 9/21/02). This week, we took out that level, which was almost the same resistance close of 968 which was set during the week of 10/8/08. When looking at a weekly chart, using weekly close data and a line graph, we've had a MAJOR breakout this week - opinion?

rb531 said...

As someone noted, the market is back to levels before lehman.The panic that happened after lehman looks to be helping now from people who shorted at that point covering their positions now. If you look at the charts i see similarity in the sharp fall during first weeks of october to sharp rally in the last two weeks at the same price levels. I still think this is short covering. This market is not acting like its folloowing any technicals or fundamentals. MSFT said they still see weakness in pc and server market. HPQ and DELL finished in the positive. so, i would just stay on the sidelines until things start making sense. Maybe NAZ 2500 by year end. I wouldnt bet against it. :)