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When Is Uphill
Downhill in the Market? |
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When is Uphill Downhill in the market?-
Right
now.
The market's job is to cause the
greatest amount of pain and confusion for the maximum number people as
much of the time as possible. The market is very good at its job.
The NASDAQ made a new 52 week high
on Friday, and challenged 1700. The S&P broke the 1,000 barrier, and
the DOW closed above 9,000. All in all, an incredibly bullish week. Why?
Certainly, the economy is not running up as fast as the market.
In a phrase- "Cash is Trash"-
That's
why the market is rocking. The accommodating stance of the FED has pumped
a ton of liquidity into the system. Interest rates haven't been this low
since the Eisenhower administration. Two months with no major cataclysmic
international events have allowed investors to believe that fiscal stimulus
will work if given the chance. Fear levels have diminished. The only place
to get any kind of return is in the stock market.
Fund managers are being forced to
chase performance. Traders are frustrated as stocks continue to move up
illogically. Record levels of cash coming off the sidelines have collided
with record high short positions to create the "Perfect Storm"
of appreciation.
Uphill is downhill in the markets
right now because stocks have an anti-gravity feel to them. The markets
are climbing the charts because uphill is the path of least resistance.
The oppressive weight of unlimited supplies of stock has been lifted, and
in a refreshing change short sellers are being blown up as stocks move
north.
This chart shows the big picture
on the NASDAQ. Technicians describe the 2100 high made in January of 2002
as the right shoulder of a massive, three year head and shoulders formation.
Between January and October of 2002 the pattern completed as the NASDAQ
was cut in half again to the October low of 1100.
Since the October low the NASDAQ
has retraced a little more than 50% of the right shoulder drop, suggesting
this phase of the rebound has nearly run its course. This massive blow
off reflected the economic and market climate associated with Enronitis
and war with Iraq. The 50% rebound of the loss reasonably reflects investor
perception of a high probability potential economic recovery.
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What's
Next? |
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Pictured here is a chart of the QQQ's,
my favorite security for trading the market. I've drawn a support line
as measured from the beginning of the current trend. The market can come
back down to meet the trend line without a major trend reversal.
I believe this trend has the potential
to continue for some time. In fact, a pullback to the trend line would
be healthy for the market, as it would allow exasperated fund managers
an opportunity to establish positions at more reasonable levels. In fact,
further appreciation from these levels without some sort of breather would
be unhealthy for a long term uptrend. If the market gets too far ahead
of itself investors will have to pay too much for stocks. Then, a spark
of fear could send the markets tumbling from unrealistically high levels,
and once again chase beleaguered investors to the sidelines to lick their
wounds.
If I were a betting man, I would
bet there is money to be made over the next two weeks in shorting or buying
a put on the QQQ. However, I am not prepared to make it a Trading Alert
quite yet.
A pullback from current levels would
be the "logical" outcome of this chart. Right now, the market is not in
a logical mood. The market is choosing to punish short sellers and investors
who have stayed on the sidelines for too long, and probably will continue
to do so until every one has thrown in the towel. Then the reasonable retracement
will come.
Stay tuned for a short recommendation
on the QQQ's. I'll publish when I feel the market is done burning the infidel
non-believers.
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Members' Forum
Alan T asks, Gentlemen:
Have you any late information about XML Global Technologies (OTC BB:
XLMG)? For a spell it was a darling, but now it's in the cellar.
Thanks,
Alan T
OTC Journal Reply: Thanks
for the question Alan. I have covered XML Global Technologies for over
two years, and to date the company definitely falls into the "loser" category
in the microcaps. In this end of the market, you have to be willing to
accept losers.
The company had three quarters of
consecutive revenue gains, albeit at very low levels, but nevertheless
worth noting. However, sales fell inexplicably off a cliff in the March
quarter to the point where one had to question the viability of the company's
survival.
The stock has come off the canvas
recently, more than doubling from a low of $.03 to the $.08 level in conjunction
with the release of a new, high speed version of their software.
I have chosen not to report on the
company until this new version of the software yields sales. For the time
being, consider me from Missouri (the "Show Me" state) on XML Global.
I would not sell it, but I wouldn't buy yet either. Let's wait for sales
to rebound. If they don't, you won't have put good money after bad. If
they do, there is plenty of upside from current levels.
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Charts Provided Courtesy Of TradePortal.com |
