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Tuesday 10/17/06
SELLERS TRIED TO TAKE CONTROL at 04:27 PM EST
The markets could have really crumbled today on the economic releases this morning when total PPI fell 1.3% (consensus -0.7%) in September amid a record drop in gas prices but the more closely watched core rate rose a surprising 0.6% (consensus 0.2%), leaving the year/year rate at 1.2%. Traders had their chance and drove the DOW down nearly 100 points only to recover all but 28 with surprising resiliancy late in the day.
I would love to see a 300-500 point decline here which would set the scene for the DOW to really explode in December, but I think instead we will see a sideways crab once we break the psychological 12,000 number on the DOW. Markets have two ways to absorb over bought conditions. Either they retrace with a pullback or they go sideways.
We will see...
Tuesday 10/17/06
BPINFY- HOW TO IDENTIFY BULL OR BEAR MARKETS FOR TECH STOCKS at 12:05 PM EST
Probably one of the most asked questions I get is how to tell if we are in a short term bull or bear market because many traders only like to take long positions in a bull run and visa-versa. Because the markets are so diverse and there is always a bull market somewhere it is prudent to narrow the field as much as possible so that you can be sure the vehicle you are testing is in a group that has the best market support behind it.
The Bullish Percent Index (BPI) is a popular market breadth indicator that is calculated by dividing the number of stocks in a given group (an exchange, an industry, etc.) that are currently trading with Point and Figure buy signals, by the total number of stocks in that group. Bullish Percent levels that are above 70% are considered overbought, whereas levels below 30% are considered oversold. Strong buy signals occur when the Bullish Percent Index falls below 30% and then reverses up by at least 6%. Conversely, promising sell signals occur when it goes above 70%, and then reverses down by at least 6%.
I like to apply the 6% rule to shorter term cycles irrespective of the absolute number of the index because they can reversals early and tend to maintain their direction for some period of time before reversing.
Probably one of the most overlooked but most important of the myriad of indices available is the BPINFY (SP500 technology sector Bullish Percent Index)
Notice that if you had heeded the call of the bullish percents back in August you would have had broad market support for the Tech stock rally that we are in right now. Take a look at your favorite tech stock and see if having the bullish percents on your side would have helped you make the right decision back in May to stay away and August to get back in the water.
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TUESDAY MORNING UPDATE at 10:12 AM EST
Good morning. With a half hour into the market day stocks sold off on news of the lowest industrial production numbers in 12 months indicating a slowing economy. This is a two edged sword of course. On the one hand the FED needed to cool the economy to keep inflation in check, but the trick is to slow it enough to have the desired effect without pushing the country into a recession. It is a fine balancing act. Personally I think they went too far in theiir rate increases and to keep the balance will actually have to LOWER rates in the next few meetings. We will see...This will be Baranke's major test.
Other than that, the pullback is welcome, if it lasts, and there is no evidence yet that it will. We have had a history over the last couple of weeks of selling in the morning and buying to new highs in the afternoon.
This is also options expirations week and normally we expect extremes in volatility moves which so far we haven't seen. The majority of options and futures players will have dumped their postions by tomorrow.
Short term that can create a lot of noise, but this market has a much calmer feel than the usuall expiration. Traders are going to try hard to make the 12000 DOW push I believe. After that we will probably see a short term consolidation or retracement to build power into the end of the year.
Will have a stock or two for you to look at late in the day.
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