Friday, November 12, 2010

Will Dip Buyers Save this Market for a 3rd Day in a Row?

While yesterday was not a carbon copy of the previous day (flush down at the open, then rally and close at the highs AND in the green) it was still disheartening for bears as the dip buyers came in once again (Pavlov dogs) as their "buy the dip" mentality has not been challenged in 2.5 months.  Markets once again flushed down at the open, then rallied, than closed very near to day highs Thursday...although not in the green as they did Wednesday.

I opined yesterday it would be quite abnormal to see the same pattern play out two days in a row, hence I did not expect it... but we are in an abnormal market.  I was wrong, because it did happen twice in a row. Today is the 3rd straight negative open - which an and of itself is as rare as a dodo bird in a world (since March 2009) dominated by premarket futures buying without precedent.  So many days we wake up to +0.3%, +0.4%, +0.5% - on no news.  Now 3 down days in a row, but with 2 days of 'urgent buying' once the market opened.  Three in a row of urgent buying?  Again, it would seem extremely abnormal.

Recall, the theory I outlined yesterday that "All POMO all the Time" is going to backfire [Nov 11, 2010: Why the "Permanent POMO" Policy Will Backfire in Terms of Market Psychology] since we are destined to have a bad day during a POMO operation, because POMO operations are now going to be just about every day.  Hence, let us see what happens after the 10:15 AM "gifting" of liquidity.   In Cliff Notes version - if bulls see they can be blown up even on a POMO day, their belief system that they are bulletproof any day POMO happens, will be challenged.

Key levels as always... (a) 13 day moving average; this has been the big one for 2.5 months: 1204.
Frankly there has been no need to talk about any other level for months.  But in case 1204 falls, (b) the 20 day moving average is 1196.

And to me the most important is the (c) 200 week simple moving average down at 1192.  That's a very long lived moving average and the older they are, the more important they are.

So we have a span of 12 very important points - it would be shocking not to see the 'urgent buyer' at least make a go of it off the 1204 level right off the bat.  The key is what happens after the cursory "buy the dip" ethos.  As always, the close is more important than the intraday action.  Any close below 1192, changes the complexion of this market in my eyes, and introduces bears back to the "1 sided market".

Fears of a Chinese rate hike over the weekend might also put "Magical Mondays" in doubt. (Of course if China does not increase rates over the weekend, we can use that as an excuse for the +0.9% open Monday morning) ;)

Again, 3 days in a row of down opens followed by 3 days of buying to finish near the highs?  Would be a bit preposterous but one must be open to all things in the new paradigm market.  Either way - a time for more vigilance as the "Men's Warehouse" top might be an option.

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