Wednesday, December 1, 2010

Open Thread Comments

Barry Ritholtz posted an invitaion to readers today. The invitation asked for comments about the advance of stock indexes today. He attracted some comments that I find informative and worthy of capturing for my future reference. He posted a chart like this one and then got some great comments.

Here are the comments referred to:

1. Until the Weekly & Daily New Highs – New Lows begin forming a topping pattern, the market has the potential to keeping moving up from a breath standpoint. Outside of quick swing shorts, there simply is no reason to get short, long term short, just yet.
You need New Lows to begin swamping New Highs as price moves up before you’ll see a meaningful topping pattern.

2. Moving this back to the weekly MA’s, and running some MA ribbons what you’ll see is big-ass MA compression with the 200 WK MA at 114 and the 50 WK MA at 112 — everything else that matters is in-between.
The MA ribbon compression on the weekly usually suggests a monster move — and of course that can be either up, or down.
With a third up-moving test of resistance on the SPY at about 123 looming, we can say this: third tests often result in breakthroughs.
Yes Virginia, there is a Santa Claus…

3. It’s been a nice short term rally. But this 1220 area we have bumped up against a few times is a psychologically significant number in my view. Look at a weekly chart from 2007 to now. The 1220 level was the place were the real scary first leg down occured in Oct 2008. Since the big bounce we have weekly closed ticks above 1217 in April then above 1225 on Nov 5th, which prompted 3 down weeks in a row (middle week felt down but was actually up a fraction). Point being is this area has scared the market back down twice recently. Weekly view of the powerfull “Bull within a Bear” from 2003-2007 shows that the majority of the updrafting occured in the second half.
I am cautious long here – 60% cash – have aken profits on all classes (metals, oil ETFs, and equities). The 40% long is still in metal ETFs, other commods, dollar long ETF, comsumer electronic and some retail (thinking it will be a stronger shopping year than expected – people can’t buy houses, but they can drop a grand at Wal-mart, and that will scratch the spending itch).

4. I sure would be more inclined to disregard my feelings that this is likely to come apart at any moment if I were to see increasing volume as we move up, and greater participation from the all-but-extinct small investor … but I am not in a position where I can afford to wait for these this economy/market/society/world to sort itself out, I have to deploy my funds and make what money I can with as little (perceived) risk as I can muster.

5. It is what it is. Another $600B buys a big party (and booze and hookers).
A prior blog comment that the market may keep going up until “Mom and Pop jump in” gives new meaning to Keynes’ quote “Markets can remain irrational longer than you can remain solvent. ”
In that case, the market would be VERY rational, but the question would be “Who’s rationale?”, since implicit in that thought is the idea that a very large moneyed interest can manipulate the market far more than most might believe.

6. One must enjoy days like this. Too much talking ruins the fun. To be bearish at this point in the game is moronic unless your betting for the market to tank because you missed this year’s epic rally. If you were smart today got rid of losers and added more money to your winners. This remains a trader’s market, so fundamentals are not that important right now.

7. Oh dear. Mr. Ritholtz, this is a sucker rally. Seen it over and over again for nearly a decade that I’ve been paying attention to this subject. If I were invested in index funds, I would look for ways to cover my ass right now.
Money is looking for a little temporary safety. A glimmer of good consumer news provides the catalyst for a rush to stocks as such behavior will support – at least for the time being. Oil saw similar benefit even when stores resisted the drawdown that some analysts expected.
Equities and commodities are convenient stores of value.

8. If sentiment readings still mean anything this is the start of a correction, not the end of one. Not only public (AAII) but advisor sentiment (Investors’ Intelligence) recently hit major extremes and the historical parallels are clear.