I have to tell you in "normal" markets that is a big danger sign. When this happened last summer and in mid fall, it foreshadowed some serious corrections. It seemed to showcase some trouble under the surface (potentially hedge funds blowing up and forced to liquidate positions to make margin calls). However, in socialized markets with the "Invisible Hand" [Jan 9: An Amazingly Blunt Commentary on the Plunge Protection Team] working it's magic, it is hard to know the outcome. Either way I continue to believe Risk is High, even if Kool Aid drinking is higher. If we were in truly 'free market' days I'd be worried about seeing 1 of these large intraday reversals; not to mention two in a week.
Again, the conditions are setting up here for the market's most wicked of mannerisms - doing the opposite of what many expect. The level of complacency has risen quickly the past few weeks (2 months ago we were wondering if Bear, Lehman, Merrill would exist, and if our banking system would survive, now 60 days later we are thinking unicorns and mermaids are ahead). Indidivual speculators... err, investors are looking for which small cap no name stock they can run in to, to drive up 40% tomorrow (instead of thinking about risk). As I wrote in the last entry, it would be poetic justice in some ways for mother market to have drawn in the last remaining bears, forcing them to throw up their hands and go long - just as she was about to drop the hammer. Could it be that dramatic? We'll soon see if historic precedence means anything anymore. If so, these 2 intraday reversals are a shot across the bow.
After seeing this pattern again, I definitely will not be reducing short exposure going into the close. Risk just got a tad bit higher.
3 comments:
earlier today, I checked in to see how the market was doing. As usual, I saw that it was again, grinding up. I looked at my sector list and I saw green lists after green lists. Just looked again, and WOW - that really did look like a reversal. Those same sectors - red lists after red lists.
I'd be weary to take off my short exposures also now. In the commodities arena, there has been leadership rotation. earlier Generals were ags, steel, and then coal later on. I think this is the first time they all took a shot together in quite a while. We'll see...
Plus our friends in AAPL and RIMM, and DRYS and other dry bulk.
We'll see how it goes. Just not a prudent time to press bets in my book, even if one misses some upside. Many charts are now nowhere near support so when they fall, there will be a gap since there is a vacuum before any serious support. Plus we just reversed off the 200 day moving average on the indexes, not good. But I am sure the bulls will drink up some Kool Aid tonight and give us another college try tomorrow.
Tomorrow we have the PPI number but does anyone care about inflation anymore other than a small set of bloggers such as myself :)
The reaction to the news will be important - unlike CPI, PPI has actually been allowed to show some heightened signals the past few months. We'll see if the market cares tomorrow.
I just reviewed the market action today, and again, it looked kinda scary. KOL, looked rather ominous to me, and if I had to pick a market general, it would have been the coal stocks.
Hell, even VIP has a nasty looking reversal pattern now. Had I got a piece, id probably have to take some off already. (I usually hold a little longer when the technical pattern points to a higher level - which VIP did)
I'm guessing tomorrow will open up fairly flat regardless of how the number turns out, but im interested to see how the last couple hours of the trading day plays out.
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