Classically Trained, for the Revolution

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 Hamilton 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

Anonymous said...

Very good......