Wednesday, September 9, 2009

Market Approaching Test Time

Cripes, this market has become so predictable with the early morning markup in the first 90 minutes, followed by hours of listless trade in a narrow range until 3:30 PM as no one shows up but a handful of financial firms' computers trading the same shares to each other and collecting rebates to provide "liquidity", at which point we normally have the final 30 minute markup as humans rejoin the battle. Just another day of the same old.

We mentioned Friday we were looking for a potential retest of recent highs and we are just about here as the S&P hit 1030. Like clockwork. NASDAQ has an identical condition. I made a minor error late last week in that I should of bought some index long exposure to take advantage of this coming retest of recent highs, so we missed an opportunity.

Of course, after a minor pullback, any market / stock on the way to newer high first must pass through what looks like a (potential) double top. Eventually the double top is confirmed and the market begins a sell off. But that has not been the case for (going on) 7 months now. So until proven otherwise one assumes (correctly or not) the "double top" formation we are now entering is just a resting point, before the next move up. Only one time will this presumption be very wrong, but until proven otherwise the computers will continue the same pattern. Anyone doubting the pattern has been slapped silly months on end.

Big picture, I expect a flood of buy orders to come into the market once a new high is breached as this market has now become nothing but a technician's paradise. I also have been saying for a good 3-4 months when everything is so predictable it USED to not work out, and the market would serve to trap people who take everything for granted. But we seem to be in a different era. The level of ambivalence in this market is extreme at least from this seat - you can almost see everything mapped out, and despite that... the market simply follows the road map almost to a tee - both intraday and interday. Some 80%+ of the days are the same - the siesta market (marked up at the beginning and end of the days, take a siesta in the middle), and every rally has the same nature - rally for weeks, take a small consolidation, create a minor double top, which is quickly blasted through on the way to higher highs. Complacency is now rewarded rather than punished. It's actually become a very boring market the past few months.

I am seeing now some incredulous upgrades by the analyst community - stocks being upgraded for the exact same reasons they were in 1999. "Well if XYZ stock trades at 50x forward earnings, than stock ABC is undervalued and I'm upgrading on comparative valuation." (I suppose its better than upgrading on the potential number of eyeballs to XYZ's website, which was a popular reason to slap a buy on stocks in 99) This is what happens when liquidity is boiling through the system and the real economy has little use for it; it is going somewhere and analysts now have to justify some quite incredible valuations by the "comparative valuation" game. As we saw yesterday consumer demand for credit is down, yet the Fed is supply more and more liquor. For whom exactly?

There was some great money to be made in that era, until the day the music stopped.

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012