Click chart to enlargeThe chart above is a chart of the Dow from 11:41am today. It's too early to say the market is going to have a down day, as it could well close up 200 points. But from its early indications, we may just get that broad market correction we've been looking for. To confirm that a correction is taking place, we'd need to see a simultaneous and decisive break of both the bottom of the trend channel and the moving average. If the market closed here (down approx 190), we would have neither just yet. Still, it would be a good sign that bargain prices may be in the near future. The financial news will tell you that the market fell this morning because Obama plans on further tightening banking regulations. This actually has nothing to do with why the market is selling off this morning. The financial news folks are the most frustrated individuals in the world. Every day, they have a stack of positive news stories in one pile, and a stack of negative news stories in another pile. Depending on which way the market goes each day, they blame it on stories from either the positive or negative pile. The real reason for the majority of the market's moves is just human nature. If the market goes in one direction long enough, people get bored. It's been going up for 10 months now, and is due for a correction. The "news" is irrelevant.
19 comments:
How is the news that banking co cannot own interest in hedge/EQ funds?? That is huge news!! The banks are selling the markets out of protest and lower profit margins going forward.
News is irrelevant? Give me a break. Your exaggerations like "all stocks go to zero" are irrelevant.
The market moves based on people's beliefs and feelings, mass psychology. News is irrelevant, market can go up on bad news and can go down on good news too.
And people's beliefs and feelings are not affected by the news????? Hello, is anybody in there?
There are a very small handful of people that actually move the markets. The rest of us retail investors don't matter. Those that move the markets don't get their information from the news... it comes way too late for them to care.
Back in physics class, we argued with the teacher when he said that the earth was pushing up at us with the same force we were exerting on it. We thought he was crazy. Only years later did we learn that in order to apply physics, you have to accept its principles. Same is true of the market. We've been trained by the market to think a certain way. We realize that it sounds crazy to say that all stocks go to zero, but those reading this blog long enough understand that this is just our way of avoiding riding them all the way to the bottom.
And, yes, people are affected by the news. But the market is not affected by these people. Stick around, it'll all make sense soon.
I said a few months ago that if a 1987 style crash was coming I would be able to see it. Well I am now seeing a very similar rsi pattern in the Hang Seng right now.
DOW 1987 vs HSI today
If the same pattern is playing out, then the crash is imminent. It will take place over the next five days, with the worst hitting next tuesday or wednesday.
XLF 14 puts are only 25 cents. The bank stocks correlate well with emerging markets. Hedging with XLF feb 16 calls at 7 cents.
Some big, important people may get the news sooner than others, but that does not mean that the news has no influence on the market. The FED drops rates 1%. That is news. The market reacts. An international incident possibly affects oil supply and that news drives the price of oil up. A bill is passed in Congress that will affect a certain industry. The equities of that industry react. Unemployment rises or drops more than expected. The market reacts. China messes with lending for half of a month and Chinese stocks sell off. LDK "proves" their innocence and the stock flies up from $35 to $70 almost overnight. You remember that one, don't you? Then they reported earnings and LDK opened up at $55 the next day and Snot sells all his shares, because LDK had broken down. He tries in vain to warn "I'll be seeing you soon" or what ever the poor pumper's name was, and he doesn't listen. Sure, sometimes big money knows that the bill will go through and it may have already shorted the market or bought a truckload of options, but the news mattered. Sometimes the news is mixed and it is hard to figure out why the market went this way rather than that way. Sometimes there isn't much news. Stick around and it will start to make sense.
Yes Icon, puff out your chest. Nevermind that you've been calling tops for 10 months now.
Anon, common sense is counterproductive to making money in the market. One would think that the market is news driven, but as long as you hold onto that belief, you will lose money. If you let the news affect your trading, you will never buy or sell at the right times.
Selling LDK at $55 was a good move, for the record.
HSI 2010 vs. DOW 1987? The correlations are getting more and more bizarre. Same timeframe DOW 2010 next to HSI 2010 look closer to similar imho. HSI is falling slightly ahead of the DOW at the moment but the DOW could soon be in lockstep.
Looks like we may well get the simultaneous and decisive break of the trend channel and moving average for the indexes today. We've got it now, but there's still an hour of trading left.
That would confirm a change of sentiment for the market.
We're looking for nothing more than a healthy 10% - 15% correction, which would put us at or a little below the lows we saw in late October. (S&P 980 to 1030, Dow 9,100 to 9,600)
We'll be keeping a close eye on the relative strength of the LED stocks as the market corrects. Right now, VECO is winning the relative strength showdown. AIXG is losing it. We'll invest more heavily into the most "selloff resistant" LED stock, but will buy substantial positions in each of our "3 horsemen of LED" if the market gives us some firesale prices on them. Then we just sit back and listen to everyone telling us we should never have bought that bloated pig and yada yada yada... just like they did with IOM, INTC, DELL, AOL, YHOO, EBAY, JDSU, SDLI, GOOG, MOS, POT, etc etc. That's always a fun part of the whole experience. Where would we be without the naysayers anyway?
Yes, Snot, you sold LDK at $55 and it was the right decision. Your sale was based on the news that LDK's margins were suspect from their earnings report and it dropped like a rock. You were wise to watch the news so that you would not lose money. The wise will also pay attention to the vote on Ben. That news could be huge for the street. BTW, I bought a starter position in AIXG today at the close. I sold my CREE after the big bounce. I can buy it back cheater later.
http://finance.yahoo.com/news/Bernanke-vote-shakier-as-more-rb-2776838566.html?x=0&sec=topStories&pos=1&asset=&ccode=
Anon,
Nice buy on AIXG at the close. We considered the same thing, but decided against it because we already have a starter position in it. It feels like we're at the start of a correction, so our thinking is that we'll get better prices in a week or two. No guarantees, of course.
Pardon the ignorance, but did this Bernanke news just surface today? Is it the "reason" the market went down today? If the market just started a strong rally, do you think it would have fallen 200 points on that news? We're of the opinion that the decision to sell to the point of causing the market to dop 200 points today was built into the mindset of traders sometime before this news surfaced. Probably sometime during yesterday's 200 point selloff. Even if good news had come out today, which it probably did, the market would still have fallen 200 points today. Just our opinion on how the markets work. We've been calling for a 10% correction since the end of December (when we sold our DDM/SSO). Did we know about Bernanke's news at that time, or was our decision to sell based on something else?
No, the Ben B. issue is upcoming news. The drop the last couple of days is a combination of Obama related news, so the pundits contend. Of course, it is, in part, inevitable to have a correction after such a long run up.
http://finance.yahoo.com/news/Obama-share-scare-Market-drop-apf-4068880429.html?x=0&sec=topStories&pos=1&asset=&ccode=
Thanks for the blog getting going again. I'm 30% cash at the moment and 30% bonds.
An article in Barron's said, in part: "This all would be more worrisome if there wasn't still evidence that investors remain quite skittish at the very sight of red on their quote screens, gorging on put options to hedge or play for a bigger drop, as signaled by the 55% sprint higher in the CBOE Volatility Index (VIX) over three days. Not only do many investors not love the market at these levels, they don't trust it."
More downside coming or is the 5% or 6% drop we've seen already all for this round?
Corrections take time to build momentum. That was a very quick 5%-6% drop, which leads us to believe that there may be a rebound in the cards. Whether there's a rebound or not, we still believe that we're in for a 10%-15% correction. The market has been sprinting ahead faster than the economy has been healing. With gas prices back at $3.00 a gallon, the economy isn't likely to make any progress for the forseeable future. Another 5%-10% off the indexes would be very healthy right now. If oil prices continue to rise and we start seeing anything near $3.50 to $4.00 at the pumps, we're going to have to turn bearish on the entire market... something we're really hoping won't happen again.
Snot, I shorted oil when it hit $82 but I covered once oil got back down to about $76. Longer term, how do you think oil versus the US dollar will go, which should be the same for all commodities?
Also, take a look at RINO. There is a stock that has very good looking fundamentals and a low P/E and forward P/E, according to Yahoo. But it is dropping like a rock right now and longs are crowding the door on the way out like rats escaping a sinking ship. It sort of looks like POT when it broke the channel in August a year and a half ago. Falling knife or buying opportunity. My guess is that you will say, "Stay away."
Article on lightbulbs.
link
For what it is worth, no shares available to short with my broker on AIXG. Plenty available to short VECO and CREE. Do the shorts know something that the longs don't know?
Or won't admit?
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