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Monday, August 31, 2009

Market Top In Progress - Again

The market is rapidly turning into a gigantic crapfest. The rise of LEHMQ (the bones of Lehman), the massive volume of MTLQQ (ditto GM), FRE, FNM, AIG (which actually has an above 90 composite rating in IBD now), and the big kahuna, C, are dominating market volume. It seems as if the rest of the market has been forgotten, the lotto tickets are in play. The rest of the market? Why, it's being sold off, of course, as evidenced in the index charts. Buyers are drying up, and the wise are taking their profits.

Nowhere is this more evident than in the Nasdaq composite. Despite hype about DELL, INTC, and the latest "they lost less money than the analysts expected" tricks, the Nasdaq has severely weakened.

The Dow industrials are a little stronger, and still in the upper half of the current trading range, but CMF is dropping, and while the last two days have not seen massive volume, there is a trend away from the shriveling volume while it was rising.

I'm still waiting for the Russell 2000 to test the 50dma, which I fully expect possibly this week. September is historically a bad month in the market, and we could very well see another one.

Oil cannot break out past 75. It gets close, then gets swatted back. Enough failures could precipicate another big drop, and while we all drool at the prospect of low gasoline prices, we can't help but realize that the price is low for a reason.

Today was particularly frustrating, as I could not stay connected more than a few minutes most of the day, and had some other stuff I had to do, and in addition it is still hotter than hell here so troubleshooting is very difficult. I missed a lot of the news today, but it seems the market didn't do much after the open. It is hard to make much of pre-holiday volume, but it looks to me like the market is trying to top here. Of course, It's looked like that for months now.

I will have the new highs update shortly.


Anonymous said...

Hi David,
I really liked your post today. I read this first on Marketticker, and now you mentioned it. So tell me, how can you tell those penny stocks are getting big trading volume, and what does it mean when these penny stocks are trading big volume compared to the rest of the market. It sounds like when people talk about the Advance decline line----only a few stocks are carrying the market.
When you say the rest of market is being sold off as evidenced in the index charts you mean the DOW & Sp500, right?
So I guess if Im understand this right, when only a few stocks are getting a lot volume and the rest of the market is weakening, it can be potential top right?
How should you be looking at volume in the indexes for for the day in a down day? Would you be looking for volume picking up.
PS I think you just explained to me in the post what the term "liquidity is drying up'. Thanks.
Also, I am now looking into the COT-- the commitments of trader report. This tells what the net futures positions of commercial hedgers are doing for all futures contracts. They charted on the site My teacher at tradingacademy uses these get a heads up about what the instituions are doing. Check it out if youd like. When you find COT divergence between the retail traders and commercial, commercial are always right.
Eddie B

David said...

Hi Eddie,

All the cheap stocks (C, FRE, FNM, AIG) were already trading in big volume (shares wise, I don't know about money wise) and I'm sure most of that was day trading. Lately, they have been trading in huge volume, and I suspect that the computers are causing most of it, as since they make money by scalping pennies per share off a trade, they would go after the orders with the biggest share volume (You will see a lot more 10000 share orders in C than you will in, say, XOM). Thus, I think the trading is being concentrated in the most beaten down stocks. Last year we saw something similar when the market was topping out during the summer, a whole lot of cheap, crap stocks started making big high volume moves. When I saw that, I said it was time to get out.

I was talking about the major indexes, like the Dow, SPX, etc, when I said the rest of the market is being sold off. The volume has so far been pretty low, so it's not panic time, and afteer the big money guys get back after Labor Day, things can change fast. But when you consistently see higher volume on down days than up days, that is what IBD calls "distribution". Their method of distribution days sounds silly when you look at it, but it works quite well.

I have heard of the COT report, but have never looked into it. I'll take a look when I get a chance, and if I can figure out what it means I'll post something on it.

Sorry the reply is a bit late, but my internet connection has been real spotty since this heat wave started. hope you are staying relatively cool. Those fires aren't anywhere near you, are they?

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