Monday, November 17, 2008

A Contrarian's Contrarian

It seems that everyone fancies him/herself as a contrarian these days. But what does that really mean?

Contrarian thinking doesn't just mean doing the opposite of the next guy (sorry, no more gender recognition). It means going against the crowd and that means that there actually has to be a crowd.

So is it contrarian to be bullish now? Not really as there are too many people thinking the bottom is in. But much to the chagrin of many, just because people think a bottom is in does NOT mean that it is NOT in. EVERYBODY would have to think that for a true contrarian to start selling the market.

So that is why I keep referencing basing process and not a trading range continuation pattern in a bear market. In today's column, I point out yet another sector with a lot of promise. In the newsletter I point out all of the positive technical evidence I see, despite only a few up-days in the last many. I even had a bunch of stocks this morning for the heck of it that looked rather good.

Of course, all of it depends on more normal market analysis and that is not quite the case in today's Abby Normal (Thanks, Eye-gor) market. But when it does start to calm, shouldn't you have a list of candidates to buy so you can get in a little earlier than the next guy?

Contrarian exercise - Which sector is getting the rottenest news right now? C'mon all you contrarians out there.


Amalan said...

my answer is the 'auto industry'. The Finance industry is also trying hard to remain the sector with the worst news, but the bankruptcy rumors of GM is taking the cake these days. Anyway, why do you ask? Even if GM does survive, I don't think the stock is a good trade - way too many uncertainties. I hope you weren't suggesting this stock as one of the candidates to buy.

By the way, I liked your reference to on-balance volume today. Just yesterday I was thinking I should try to find volume information, the kind that adds all the volume associated with upticks and subtracts the volume associated with downticks. This is not exactly what you refer to as on-balance (which donates all the up-day volume to 'up volume'), but I think the tick by tick volume is quite powerful - only if I had the data with me...I know Lazlo Birinyi, who writes in Forbes collects this data, but he has not talked about it in recent times.

On this down day (Nov 17), the volume seemed to be a bit lighter (4.9 billion on the NYSE vs. 5.2+ billion in the recent past), but I don't know if I am seeing what I want to see!


Michael Kahn said...

No, not autos. GM is going to fail no matter what the feds do. Does the phrase "worst Christmas ever" sound familiar? If only I had free cash to capitalize on all the sales that have already started.

As for Birinyi - after reading a report of his when he was at Salomon Brothers (if I recall the firm correctly) I became a money flow junkie. We incorporated it into our charting package called Tradecenter in the late 1980s. That was a great company.

While there is debate over Birinyi's actual claim to the study (some cite Don Worden as the creator), I found it to be amazing when summed up over a month's action and compared to price.

Anyway, now that you brought it up, it stopped working around 1990 and I had one of our programmers, now that we were just a cog in the Knight Ridder Financial machine, rejigger money flow to keep zero plus and zero minus ticks in play. Worked like a charm again.

But then Tradecenter was phased out and all that tick by tick data was lost. I would love to get my hands on a database like that again but with all the new products out there (ETFs, etc) who knows if it will ever be the same?

As for Birinyi himself, the last time I heard anything about him he distanced himself from technical analysis. Convince him to release his data!

Ragamuffin said...

Which sector is currently the one battered worst? Hard to make up my mind, really. Financials, sure. Autos, granted. Commodities? Alcoa has taken quite some battering recently.

And technology. Yes, definitely technology. The chart looks even worse than that of financials, at least on a quick first look in terms of the recent development: