Wednesday, October 08, 2008

Up Chuck

Panic works in two directions.

Volatility measures remain historically high (VIX, VXN), so timing and tight stops are everything at the moment, but what I can say as a trader worth my own salt and vinegar, we are set for a little splash of upside.

We could drive still lower first, take out Dow 9000 tomorrow, even shake them very, very hard. But whether it is a root canal reversal, or we flog around a few more hours, or we just open-up and never look back, there is an up-move on the (event?) horizon that will open brows and spark a flurry of hope and greed; even if short-lived.

In fact, an explosive bounce would very likely be short lived. A more slow and constructive move higher could stand several days to a couple of weeks. But either way, I think we're on the verge of a tradable reversal beginning Thursday and I'm on hiatus again from shorting this market (long-only mode).

That said, if I am dead wrong, when a low is established here (the lows from where the bounce begins; counts for both indices and individual stocks), I will most certainly bail out and surrender to the bear if fangs begin puncturing ass flanks (Translation: I'll have stops at levels slightly above recent lows, once this trade begins).

For many larger cap names, that bounce began today and with heavy volume from a variety of industry groups. Major volume poured into big-cap names and they acted hugely resistant to pressure late in the day today; at the same time the indices were involved with Nervous Breakdown #19. That is a sign of institutional accumulation and something not seen in a while.

So even if we're still in the midst of massive redemption from so much of the hedge fund community, today we saw a tipping point in the degree of accumulation vs. distribution.

Another point to consider, the S&P futures traded something like an 8% range today in the pre-market (massive volatility tends to mark peaks and troughs, even if short-term).

The public is obviously sufficiently fearful of buying stock - that much has been good all week. But we need the big-money macas to begin buying before we know there is an aggressive counter-trend developing.

Look at the volume on the day in these larger-volume stocks and note how they closed on an otherwise down day (a day the Dow close down 2%):

TGT, XOM, X, INTC, AAPL, RIMM, PCLN, AGU, RIG, SLB, PCU, FCX, RIO, CNQ, NOV, COP, PBR, CHK, SID, NUE, CLF, YUM

This list is mainly to illustrate a point. I'm trading some of them, but mostly it is an indication of a new bid in the market. Until we see more of a bottoming action and not just an indication of an initial low, I'm keyed mainly on index trades.

Have a drink on me.

2 comments:

Chris said...

Hi Mike,

I tried contacting you a while ago but never received a response, can you please email me at chris.hamilton @ boomerang.com.au?

Thanks

goooooood girl said...

Very good......