Babak's Journal

Loved the comment.

I might have focused on it somewhat differently. Sometimes the markets that are going one direction, when we can only think of reasons for them to go the other direction, are the best moves. Ever notice that?

OldTrader

 

It seems to me it's always easier to make the bear case. You can just trot out a half dozen potential disasters (ok, kind of like I did a couple pages back). The bull case rests more on faith most of the time, unless you are at a significant puke-up point.

I will note that the Jim Cramer contrarian indicator has to be flashing red right now. He's posted about 5 bullish articles today.

Old Trader has a point. A market that can defy the consensus is telling you something. But it seems to me the consensus is very bullish right now. That is the point Babak has been making. Sentiment, however, is not a good timing indicator. A market can stay overbought for a long time, or until funds run out of money to prop it up with.

 

Holy Schmolee!! Friday's action may be memorable for the range but for me today makes that pale in comparison. Why you ask? I'll get to that in a minute.

First a short run down of notables today. Sentiment wise, the market is very bullish. The non-scientific poll at RM.com today had almost double the number of bulls to bears. Another thing that made me raise my eyebrow was that the biggest pan was gold stocks!!

http://www.elitetrader.com/vb/showthread.php?s=&threadid=13959&perpage=6&pagenumber=1
[scroll down a bit]

As well, Cramer was frothing at the mouth and polluting the site with post after post that this is "it". Here is a short excerpt from the gems that he subjects his readers to:

Too late Jim. You're already there. Oh and thanks Jim

Now the already mentioned indicators are hitting the red line. The NYSE/Nadaq Summation Indices are screaming to historic levels. The VXN and VIX are like a rubber band stretched taut from their long term MA. The internals are screaming themselves hoarse. As well the only fly in our ointment, the BP indices are starting to cooperate in a BIG way. The NDX and COMPQ are at 76 and 54.67 respectively. Their historic red lines are at 80 and 55 respectively. Furthermore, TrimTabs' has turned bearish due to their fund flows studies (seemingly an about face after an April 25 'new bull' call).

Alan Newman, a crusty Wall Street curmudgeon is saying that the market's internals right now are at the same levels as March 2000! He has a great site with some amazing graphs at www.cross-currents.net (check out archives)

Now I wanted to touch on the Transports since a lot of attention has been directed at them recently (due to their performance, Dow Theory role, SARS and oil price effects). But the Transports are the highest BP sector out there right now!

Their BP is 75 right now (with red lines in the 80-85 area). Be mindful that when the market as a whole turns and takes a dive, the transports will be very hard hit. The index itself and many of its components are hitting resistance and will be met with selling pressure as a result. Furthermore, there will be an avalanche of selling for those that were lucky enough to ride the recent updraft. So watch out, this sector could fall in a big and nasty way soon. I am thinking of playing this through already weak stocks like RYAAY. You can make up your own mind.

ok so back to my first point (above) Why did I go into epileptic shock when I looked at today's action?

Well, vhehn was kind enough to post this link earlier today:
http://www.dailyduediligence.com/Midday/nylow.html

It touches on an internal metric that I spoke about before (new high and new lows). I mentioned that it was at a historic level and pointing to a top. The article says basically the same thing pointing out that the recent low reading of 3 is VERY low.

Well, if you thought that graph was interesting then check the one below!! It shows a reading of 1. Yes a 1. I don't know if that is a typo but unless it is....

...the new high to new low ratio for NYSE is at 222 (or 222 new highs for one new low). Do I have to point out how ridiculous that number is?

For the Nasdaq, it is at 19. Not off the charts like its NYSE cousin, but it has only been above 15 five times since 1991. Right now is another. I don't want to give this one indicator more merit than it deserves, but when such an internal metric spikes to historic levels, one has to stand up and take notice. If only because it doesn't happen often.

Conclusion? time to bring out the big guns, no more pussy footing around. This market is going to tank and tank in a bad way.

But then again...I could be wrong! And I'm sure if I am, you won't let me forget it. :eek:

 

Lots of research and interesting ideas in your journal. I'm enjoying reading it. Thanks for sharing.

 

You realize that Jesse J isn't going to be able to stand this

 

babak says, "Be mindful that when the market as a whole turns and takes a dive"

That's right, admit you're wrong, the market has rallied since you started this thread, and you have no sense of market timing.

BTW, I agree with you that the market will fall, but unlike you, I will tell you to sell a few days BEFORE it starts. You tell us about it weeks before, and with major damage to your account as the market rolls against you.

How much have you lost so far making this incorrect prediction?

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Nice work Babak, it's a good informative read, the effort is appreciated.

 

Babak,

Do you wait for price confirmation before entering your position (for example, a break of the upward sloping trend line on the S&P 500 index)? Or do you start building a position before any break happens?

What happens if the price continues to move against you? Is there a stop point that would make you reconsider your market stance?