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VIDEOWithout Momentum Today, Market Looking Vulnerable
By
Jeffrey Cooper
Aug 19, 2010 10:10 am
The market may just go flat into expiration, but some players may recognize a lack of bids in front of the weekend and a downdraft could play out.
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“All your seasick sailors
They are rowing home”
-"It’s All Over Now Baby Blue" (Bob Dylan)
“While the joy of winning for clients is immense, for me the disappointment of each interim drawdown over the years has taken a cumulative toll that I cannot continue to sustain."
-- Stanley Druckenmiller
“To whom shall I hire myself out?
What beast should I adore?
What holy image is attacked?
What hearts shall I break?
What lies should I uphold?
In what blood tread?”
-- Arthur Rimbaud ("A Season in Hell")
Translation: It isn’t what it was.
It’s true. We all know it in our bones. The market just isn’t as fun to trade as it used to be -- whether "used to be" is the second half of the 1990s or as recently as 2007.
It’s always stressful, but in the last year or so more than ever it feels like we’re playing against machines, or worse, city hall. The deck feels stacked sometimes. Sometimes our wins feel too much relegated to luck than expertise and judgment.
Getting whipped, and getting whipped around when you’re a highly competitive individual, gives rise to "unusual uncertainty." This seems true whether you’re an individual or a company. Both end up playing more not to lose than to win. And this is a road to perdition marked by death by a thousand cuts.
While the markets are an emotional beast, if anything, when any wisp of logic is shredded by seemingly random acts of pernicious trendlessness, the exit sign looms large in neon.
Trading ranges are the hallmark of throwing in the towel. Whipsaws without any apparent underlying raison d’être define times of unusual uncertainly where the machines dominate with strategies of trying to squeeze dimes out of nickels.
High-frequency trading racks the nervous system if you’re trying to toe-tag every market move and extract synergy from noise, symphony from chaos.
It isn’t what it was. And, often it feels like Mother Nature is trying to be fooled. These are the stakes when the system breaks and the death of fiat money looms. The powers that be don’t give up easily allowing a natural ebb and flow, a natural progression, to cleanse the system. The powers that be don’t give up power easily.
For example, recently there's been much talk of the bond market being a bubble. However, the bonds are being driven by Fed-buying; and they won’t give up easily. Sentiment and technicals take a backseat to a drunk driver with the pedal to the metal; a driver who runs over savers and those on a fixed income.
When an icon throws in the towel, it's a sign of the times. It's symbolic of something. This isn’t Jesse Livermore with gun metal to his head. This isn’t about losing money, per se, in 2010. You don’t stay in the game when you have billions unless there's a joy of competition, of matching wits, of winning. This is about the mettle of the markets. Is it about the meddling in the markets?
In more ways than one, the exit of a lion of the street, Stanley Druckenmiller, speaks to the disarray on the Street. It's a watershed event that likely defines a turning point in more ways than one. A great competitor knows a graceful exit when he sees one.
I like to say that the market usually (not always) gives a graceful exit. Was Tuesday’s rally a graceful exit for the bulls?
As offered yesterday, follow-through on top of Tuesday’s momentum would be key. Instead, a last-hour bull flag failed with the bids getting hit into the run-off mirroring the late trade from Tuesday.
Then, the SPY got hit immediately after the close on Wednesday, sliding from 109.80 to 109. Ostensibly on nothing.
No wonder participants are leaving the playing field when noise dominates and the rules of the game seem to change from week to week.
Was Tuesday a one-day wonder? Was yesterday’s post-bell slide just about more crushing of premium going into Friday’s option expiration?
The S&P tried to breakout above 1,100 once again on Wednesday, but there were few signs in the vast majority of stocks that they would contribute to a breakout. Be that as it may, will a third attempt today meet with success?
If momentum fails to show up today, the market could be vulnerable, with a third failure to regain 1,100 finding bids getting hit.
Moreover, with this weekend getting a lot of attention regarding a time line for an Israeli strike of an Iranian nuclear reactor that’s due to come on line, I can’t help but think that discretion may be the better part of valor for the woolliest of bullish money managers. Why would anyone chase what they want to own, rather than wait til Monday, just in case?
Charts of two leaders seem to define the turning point in the market. Google (GOOG) appears to have traced out a continuation Head & Shoulders top similar to the one that prompted my firm to take a short on Research in Motion (RIMM) this week. (By the way -- while we were stopped out of our second piece of Research in Motion, I'd continue to keep it on the radar as it tailed off yesterday and still may have an agenda to 45 quickly if RIMM stabs below the 50 strike again).
Salesforce.com (CRM) has made new all-time highs recently, however the dailies show what look like three drives to a high with a Head & Shoulders top.
The head itself looks like it may be an island top.
Note how the current pattern looks like a fractal of the three drives to a high on the monthly chart in 2008. Note how a trend line from 2006 through 2008 catches the recent high. Last month CRM traced out an outside month up (it's important to always look at the multiple time frames).
Trade back below the low of July implies a move down to the channel line near 70. Of course, CRM is far from flirting with a break of July’s lows but turning to the daily chart, we see that a break of 95 and a daily channel coincides with a break of the 50-day moving average, and this could be an early warning.
Conclusion: The market may just go flat into expiration. But some large opportunistic players may recognize a lack of bids in front of the weekend and try to push psychology around on a thin pre-weekend market in the summer in the city. A sharp downdraft could play out.
Strategy: Below 109 SPY the market is in a week position; above 109.50 we may get another try for the move over 110.
It’s not what it was. But, it’s not what's at the beginning, either.
“The empty handed painter from your streets
Is drawing crazy patterns on your sheets”
-- "It’s All Over Now Baby Blue" (Bob Dylan)
No positions in stocks mentioned.
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