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Mr. Market Has No Loyalties


Mr. Market may hang with Hoofy for a while and hang with Boo for a while, but he's got no loyalties...

With the lights out, it's less dangerous
Here we are now, entertain us
I feel stupid and contagious
Here we are now, entertain us

And I forget just what it takes
And yet, I guess it makes me smile
I found it hard, it's hard to find
Oh well, whatever, nevermind

--Nirvana (Smells Like Teen Spirit)

The bull market snorted ahead on Wednesday after recovering from the bear market. What, you missed it? I'm talking about the gap down on Tuesday and the ensuing selloff that lasted a few hours before a recovery into the close. Ya, there's your bear.

It's not that I don't like a party. It's that I don't like hangovers. It's not that I'm from the world as it should be rather than the world as it is. It's just that I haven't excommunicated skepticism nor banished cynicism from every corner of my mind. Not yet. I think there is a place for healthy skepticism---even if it is a tiny island in the stream.

Who doesn't like to party with the lights out, who doesn't like to be entertained? The problem is I come from the old school of trading where there is/was a two sided market. I have a slight problem: when things get too easy I get nervous. Those who have been around for more than one cycle tend to get indigestion at the smell of free lunches. They've been loaded up before when the gorilla rings the door bell. If you're flirting with the momentum gorilla just make sure you know where the zipper is on your gorilla outfit lest you end up like Beeks.

The market turns on a dime, most traders cannot. Make sure those zippers don't get stuck and that you adhere to your stops when the animal spirits rip the other way.

The market is like a juvenile delinquent. The market is as Joe Pesci would say "a funny guy": it doesn't like to accommodate. It doesn't like to accommodate bulls or bears. Mr. Market may hang with Hoofy for a while and hang with Boo for a while, but he's got no loyalties: he made his bones whacking anyone who gets too comfortable.

As Jesse Livermore said, "The diabolical purpose of the market is to continue higher with as few people on board as possible." Mr. Market's day job is not to accommodate. I suspect there are just as many sold out bulls in Tape Town now as there are bears who have thrown in the towel--especially after Tuesday's breakaway gap to the downside and subsequent recovery.

After the FOMC meeting on Wednesday, Mr. Market did his typical Cha-Cha. He ripped higher after an initial blip down, but where was the third Cha in what is a traditional a post FOMC Cha-Cha-Cha pattern? The third swing usually hits pay dirt. Will we get a Cha down on Thursday? Maybe. I don't think the strong close on Wednesday was an interpretation of anything out of the FOMC. Rather, the initial weakness followed by strength has been the signature of the last six Fed meetings. So I think there is a better than average likelihood that it was set up by the arbs after Tuesday's recovery. If so, then the Big Dogs should leave after the first hour or so on Thursday.

This weeks close is important as we have been straight up for seven weeks, normally a run that sees the market exhale. And, there is reason to watch for a turning point as the pivotal March 12, 2003 low was approximately 1518 days ago. On Wednesday the S&P tagged 1513.80 for a possible 'square out' of time and price. Additionally, the DJIA shows a measured move: from a low of 11,424 on the week ending Sep. 29, 2006 (the week the DJIA broke out over last May's highs) the index moved up 1410 points to a high of 12,846 on the week ending Feb. 23, 2007. From the low of the March correction at 11,927 a measured move of another 1410 points gives 13,337. On Wednesday, the DJIA made an intraday high of 13,410. Any turn here could be contagious.

Any break below 1507ish will suggest that Wednesday breakout was a headfake. A break below Wednesday's low's will trigger a Short-term Triangle Pendulum Sell Signal.

Clearly, this week's lows near 1500 are pivotal, as the this daily trend line demonstates

A) Breakout over May high low of week, 11436
B) High of 12846
C) Low at 11927 plus a measured move of 1410 points gives 13,337
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No positions in stocks mentioned.

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