Thursday, July 7, 2011

This time its different...the popcorn has butter, salt and cheese and what's more its good for you

A nearly 100 point move in the Russell 2000 in a matter of days is an absolute anomaly especially when it is on relatively innocuous news flow and thin participation.  TF is up 9 days in a row and that represents a panic and hysteria to get into this market long - or as is more likely the case, to get out of it short (remember everyone was trying to short the end of QE) and then flip long for the elusive huge miracle trade is just astonishing and at the same time patheric. All in all, as has been confirmed over and over in our market...momentum trading does not work. The realities are most likely the same now as they have been for a long time...prices will take out the maximum stops and entice the maximum buyin and then close the trapdoor. This is why retraces of 88.6% and 112.8% are the most common spot for reversals in our markets over the last few years. Insolvency, or fear of it, seem to be the primary conditions driving our markets, and you can expect anyone stupid enough to be trapped in that psychology will be a good candidate to be trapped in this one.

Several points that significantly undermine this popcorn move:
  1. 5, 10 and 30 year bonds are not confirming this move in equities
  2. The Dollar is not confirming this move in equities
  3. Most commodities are not confirming this move in equities
  4. EURO is not confirming this move in equities
  5. The Australian dollar is not confirming this move in equities and is about to trigger short
  6. Oil is not confirming this move in equities and is about to trigger short
  7. VIX is not confirming this move in equities
Points supporting the market:
  1. All in all thin support from names like AAPL, Netflix, Priceline and a not too large assortment of other names that are confirming the move in equities
  2. News flow has been interpreted positively
And yes...this time its really different...that's why my systems will be adding shorts today and likely into tomorrow if the opportunity presents itself.

Below are the transports:

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