Follow The Smart Money
Yesterday’s trading action was quite telling if you paid attention to it. The whole day we had a low volume buying spree that started in the morning and didn’t stop until about an hour before the close. Then the selling kicked in and half the gains evaporated into thin air. My take on this is that the institutions, or the smart money were doing the selling while the rest of the public and high frequency traders were doing the buying. The smart money usually plays the last hour of trading, so this could be taken as bad news for the bulls.
A Hostage Situation
I am glad I am not doing much trading in this market because it would drive me insane. Good stock picking hasn’t been rewarded for a long time and the violent swings seem to have no rhyme or reason. Whatever the prevailing sentiment out of Europe is that morning is what will dictate the day’s trading. I think this is a great environment for technical analysis though, and underscores the point that those with more tools in their arsenal will fare better than their one dimensional brethren. Those that have been able to play this range have been loving this action.
My Prediction
This is a bad tape to try and make broad predictions, but I will toss my hat in the ring and try. I think that Europe is in terrible shape and another big shoe will drop there soon. Since our market has been held hostage by Europe, this means that we will break below the key 1100 support level and test the 1000 area. I certainly don’t think we are in as bad a shape as they are, but the fear levels will hit new highs and investors will scurry out of stocks at home. Another reason that I feel this way is that the rallies have lacked conviction and volume, which says that the high frequency traders and fast money are dominating things, while the institutions are much more cautious. I would get much more bullish if I noticed more participation by the big boys. Of course that is my two cents and I could be completely wrong, but you already knew that.
Some MORE Random Market Thoughts – 9/28/11 is an article from: 
