Wednesday, November 30, 2011

Ghost in the Machine

From Wikipedia:

The "ghost in the machine" is the British philosopher Gilbert Ryle's description of René Descartes' mind-body dualism. The phrase was introduced in Ryle's book The Concept of Mind (1949) to highlight the perceived absurdity of dualist systems like Descartes' where mental activity carries on in parallel to physical action, but where their means of interaction are unknown or, at best, speculative.

That sure looks like the stock market this week to me. One third of Wednesday's volume took place in the "clean up" bar after the close. That is where all the late data gets dumped and from the size of it we can surmise a lot of market on close orders.

I'd like to think of it as the smart money getting out while the getting is good.

Here is a chart of the NYSE composite with volume and that ghostly current day's volume spike. Looking at this as a snapshot of heavy volume on a big up-day belies the absurdity of the intraday action. It looks like it could be a follow-through day (FTD) too but again not when we dig deeper.

And speaking of FTDs, the three places on this chart where they could possibly appear are highlighted. Today's rally took place before the FTD window opened - 4-7 days into a rally attempt. That means is still qualifies as short-covering.


monroe said...

Given all the central bank interventions (meddling), does technical analysis still work?

Can you address this on the blog or perhaps in your Barron's column?


Michael Kahn said...

TA still works but you have to recognize the environment. You still have the masses of people putting money to work long or short or in cash or in gold or in..... But when the Fed et al flood the market with liquidity, demand goes up (risk on) and so do prices.

The problem is that when the artificially induced demand ends stocks will crater.