A financial blog on investing in stocks, commodities and the gold bull market.
Wednesday, September 3, 2008
I've gone over historical data with subscribers that suggests we should see some kind of rally attempt after today's weak decline. However there are some disturbing signs popping up.
First the S&P looks to be trying to break down out of the rising channel. It actually moved outside the lower trend line today before managing to close back above it.
More disturbing is the relative weakness of the Nasdaq. The tech sector has clearly broken the trend from the July rally and has taken out the Aug. lows. It has failed three times to move back above the 200 DMA and is now threatening to break below the 50 DMA. If this rally were healthy we should see the speculative tech sector leading.
Remember all those analysts pumping the tech sector as sub prime proof and recession proof? Funny, I don't ever remember a recession where tech was a safe haven, do you? One has to wonder if anyone really believes this crap.
The next chart is equally disturbing. Money continues to flow into the safety of bonds. To top it all off Lowry's selling pressure is starting to rise again.
I'll say it again, bear markets end in multiple 90% down volume days followed by a buying stampede as smart money comes roaring back into the market looking to buy value. We've had one 90% down day since June and there's been no rush of institutional buying. The smart money is still trying to exit this market. The only ones buying into this rally are the retail investors listening to Cramer.
These are the same investors who bought housing stocks at the top when Cramer was pumping them in 06. Or tech in Oct. 07 when Cramer was calling for 16,000 in the Dow. Recently the minnows got caught in the great wildcatter bonanza of the summer of 08. Want to take a guess what Cramer's pumping now? Financials and housing stocks!
I can hardly wait to load up tomorrow on these buys of a lifetime???
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T1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. T2. Reversal or resistance to a move is likely to be encountered: - 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range - On approaching highs or lows T3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently. T4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken. T5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places. T6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side. T7. Watch for volume climax, especially after a long move. T8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps. T9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
General Trading rules
G1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move. G2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases. G3. Limit losses and ride profits, irrespective of all other rules. G4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. G5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal. G6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation. G7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100% G8. In taking a position, price orders are allowable. In closing a position, use market orders." G9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules. G10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag. G11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.
Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such positions.