Tuesday, October 25, 2011

Split Personality

With today's thrashing of 3M on earnings the split personality of the market continues. On one hand, the breakout from the summer trading range could not be any clearer. It even satisfied my requirement that it pause at resistance before breaking out, too.

But on the other hand, the way it treats earnings winners and losers is unstable pre-selloff behavior. I invoked the Hindenburg Omen in my column last week saying that it was not too dissimilar. The HO looks for lots of new highs and new lows at the same time. The earnings thing has stocks beating their numbers jumping up huge and stocks missing them getting killed.

Usually, an up market treats winners nice and shrugs off the losers by not doing much to them. Conversely, a down market punishes losers and shrugs off winners. This market is doing both.

With Europe's woes coming back to the fore tomorrow with a French-German announcement (postponed from Monday) risk is the magic word of the day.


Will said...

People think we are breaking out and need to buy, of course this occurs after the 15% rally.

If you look at simple long term trend following methods, they've gone to bear mode (50/200 dma etc).

And seeing as how the McClellan closed at +2.25 standard deviation above the mean yesterday (meaning it only closes higher 1% of the time, the highest reading in over a year), this is about the highest risk time to be long stocks I've seen in quite some time.

If we cross back to bull mode, we cross back. But you're not missing out on the bull side when the McClellan is this overbought.

Buyers beware.


patrick neid said...

In this environment anything is possible, including new all time highs. Trillions of dollars are being floated about and who knows where they will end up.

My chief concern over the last year or more has been the drama connected with Europe and the consensus opinion that only bad things can occur and yet the Euro trades near its all time highs instead of near parity.

If we are going lower the news will be from somewhere else. I believe a recession and Europe have long since been baked into the cake. Should good news come out I think new highs are a given.

Personally I hope we go lower-I'm not short-because in going lower is there any hope that we will bring some sanity to our monetary and fiscal madness. Higher prices/markets allow us to inflate away our concerns making the long term problem even worse.