Saturday 12 September 2009
Curiously, there are a lot of frustrated bears out there for the stock market and
the indices. Even more curious is why they are bearish? We often say that the
most important piece of market information is knowledge of the trend. Why is this so often ignored when it is so enormously helpful? Knowing the trend also helps
the bottom line, and is that not the essence for trading, to increase the size of
one’s account?
Know the trend!!!
Is there only one? Good question! Yes, and no, an equally good answer, for there
is only one trend, but there are several different time frames, and sometimes the
trend of one time frame can conflict with another.
We digress a bit for the S & P analysis, but this is so, so important, and so, so
under-estimated. Many, if not most trade using a daily chart frame of reference or an intra day time frame. Day traders, and even swing traders may rely on an intra day time frame and not be fully aware of the daily, or even the weekly time
frame. A buy, in anticipation of a profitable move up on an intra day chart may be at a resistance point on a weekly chart that can stop the short term trade in its
tracks. Those unaware of the weekly trend, which can be in opposition to the
smaller time frame(s) will have problems with short terms trades when a smaller
time frame may be pointing up. The larger the time frame, the more controlling
the impact.
Back to the bears and the S & P…or at least those who are bearish and looking for a turnaround. Let it be added that we know of many who are quite trader-
sophisticated, and many that are large in funds capacity who have been bearish on the S & P for many weeks. That address the question of curiousity:
Why?
A look at the weekly chart shows a market that has been making consistently
higher highs and higher lows. Yes, there was a sideways move for most of May
and June before resuming up again in July, but look at the character of the
correction. After 11 weeks of sideways activity, how far down did the market correct?
An imperical inspection shows not very far. That was a very clear message from
the market! “If, after 11 weeks of trying that is the best you [bears] can do, we
[bulls], are going back up,” said the market, [if it could talk.] We were among
those who thought the market was about to resume the primary trend down, and
we took one loss at the beginning of the 2nd leg up that started in July, but it was
impossible to “fight the tape,” and the tape, [market prices] was still going up.
That is what is called knowing the trend. The very shallow correction on the weekly
chart was an important indicator for the lower time frames, and it was telling the
lower time frames not to be short! That has been the message of the market
since the 6 March lows. Shallow corrections lead to higher prices!! [Remember
that, for ANY time frame.] We have not been impervious to the siren calls of
bearishness, but we never responded because the trend dictated otherwise.
It is understandable why some are bearish. Note how price is not reaching the
upper portion of the channel, a more subtle sign of weakness, but it is just that, a
sign, and one that has not been confirmed. Also, three weeks ago was the
smallest weekly range in a year and a half, and that kind of activity is usually
stopping action. The reason why the range is so small is because sellers were
present in the market and able to keep buyers from moving price higher, and
buyers were not present or unable to make any impact. That, too, is a high
probability, but it needs to be comfrmed. The trend did almost change, two weeks ago, but the might of ongoing Federal Reserve intervention in the free
marketplace was able to once again resuscitate the bulls and keep the move alive.
The last nine weeks have been higher, but note the ranges of the bars compared
to the previous leg up. They have gotten smaller, and this is not a positive sign.
However, the bottom line remains that price is moving higher, and that is what
rules, the tape, price avtivity. Ignore at your own peril.
The patient is alive but on life support, and that is the mesage of the market.
Bears see the signs of weakness that “normally” leads to turnarounds, but these
are not normal times, and the trend, regardless of one’s interpetation and/or
belief of the market, continues to say higher. That remains the message of the
weekly timeframe. Take heed, bears.
Switching to the daily time frame, look at the high volume day of 11 June. Price
probed higher but failed and closed on the low end on very high volume. That is
the tape telling us that sellers were present and won the battle against buyers in
an overwhelming fashion. Results? A price decline for the next month. Look at
the high volume bar of 1 September. There was a failed probe higher, two days
earlier. Bears saw this and came in selling on the first, as volume shows.
Results? None! Next day, the range was the smallest daily range it almost two
months.
What happened to all that selling?! The net result of that small range day was
another message from the market that sellers lost control and buyers [actually,
the Fed] were taking control back, and price made higher highs, higher lows, and
higher closes for the next seven trading days!
So much negative activity, yet when viewed through the prism of what is the trend,
opinoins are stripped away because the daily trend, whatever the negative activity,
never once turned down! Is knowledge of the trend important?
You be the judge.
Knowledge is said to be power, but it has no power unless put to proper use.
If you are long, cheers! If you are not long, do not be short, do not be short, do
not be short! The trend is your friend. [Groan….but still, true.]
As an aside, we wrote an article on the 9th, As Above, So Below, outlining the
astrological environment during this interesting market rally. We await to see the
how the stars play out. Curiouser and curiouser.
