"He that gives good advice, builds with one hand; he that gives good counsel and example, builds with both; but he that gives good admonition and bad example, builds with one hand and pulls down with the other." ~ Francis Bacon 1561-1626, British Philosopher, Essayist, Statesman
Extracted in part from the October 23rd update
The current market action reminds us of foot prints in the sand; as the tide rises it washes away these footprints and so on the next day it would appear as if no one had trodden on this beach at all. This unfortunately is the way the minds of most investors work. One day they are bullish and then a wave of panic hits and they forget why they were bullish to begin with; then they turn bearish and when a wave of good news hits they forget their reasoning for being bears and so goes this sorrowful dance of death until the player is either dead or destroyed. Sadly to say most individuals also live the greater parts of their live in the same way; as the way one behaves and reacts in the markets is nothing but a reflection of ones personal life. The market in effect is nothing but a reflection of the mass mindset in action; One that is plagued by constant worry and very little pleasure.
Last week the Dow corrected over 570 points and immediately the penguins jumped from the euphoric boat to the boat that is filled with gloom and misery. Now they are talking about the same old news that was being broadcasted when the Dow traded all the way to 12500; higher energy prices, housing problems, liquidity problems in the credit markets and all sorts of other junk. 99% of this news is already priced in but the media wants to come up with some story, after all they have to report something and the masses who are desperate news junkies are always willing and eager to provide a ear for this sewage which is now mistaken for news. Misunderstand us not for we do believe that there will be a day of reckoning but that day is not quite upon us and even when it does fall upon us it will actually produce some incredible investment opportunities in its after math. For as we have always stated in the past every disaster always leads to incredible opportunity; the problem is that most sit there waiting for the hammer to fall on their heads instead of positioning themselves for the impending opportunity that lies just around the corner.
Our moving average of new lows (all 3 of them) overtook the moving averages of new highs; this indicates that the smart money is still selling into strength or at the very least they are not opening up new long positions yet. As we stated last week the NYSE short interest ratio spiked to yet another new high which suggests that at this point in time we should only expect a correction and not a crash.
Increasingly in the last 3 weeks the volume on the down days has been higher than the volume on the up days and so it looks like this correction could suddenly gather steam but it will only be a correction and not a crash at least not yet. Last week the volume surged quite a bit, there were days when the volume was close to approaching the 4 billion mark; this is something that never occurred in the last 3 weeks on days when the market closed up. This rapid rise in volume on down days means that there is now a 50% chance that the market could test its lows again. The main area now would be the 13350-13400 ranges; if these levels are taken out on a closing basis on high volume then we can at the very least expect a test of the 13000 mark if not the 12500 price point level.
If we look at the sentiment table below note that during this entire run up the bears have outnumbered the bulls. When you combine the neutral camp with the bear camp the number is even higher (remember there is no such things as neutral individuals these chaps are just bears who have temporarily lost either their teeth and or claws).
What we are dealing with here is perception and even though many of these individuals probably have small to no positions in the markets it is very useful data. Most of these chaps are small investors who missed the entire bull as they were either sitting on the sidelines after being stung with massive loses when the Nasdaq tanked back in 2000 or they were busy playing the real estate market and collectively these chaps are sitting on what amounts to almost 2 trillion dollars; all this money is sitting in money market accounts waiting to be deployed. They are now oscillating between fear and greed as on one level they think it's too late to jump in and on the other they hate the profits they have missed and fear that if they keep waiting they could lose even more. Eventually they will jump in feet first and help drive the markets to new highs and then they will be roasted alive and flung out head first as they over stay their welcome. This is exactly what took place and continues to take place in the housing sector.
Any major pull back should be viewed as a buying opportunity and we feel that a pull back of 600-900 points could still be in the works. We will advise risk takers when the time to buy additional call options is at hand. Market update Oct 9, 2007
We are expecting a pull back in the short term time frames; this might or might not materialise as short term timing is the most unpredictable time frame to deal with; if it does transpire risk takers and futures players can buy calls on the Dow, QQQQ.s, OEX and SPX indices; futures players can go long Dow or SP 500 futures contracts. Wait for at least a 600 point pull back from the current level. Market update Oct 16, 2007
Based on the above two excerpts risk takers should have gone long in the 13400 ranges. Two weeks ago we stated one should wait for a pull back In the 600-900 point ranges at that time the Dow was trading at around 14150-14200 which would roughly equate to a pull back to the 13300 to 13500 ranges. However in the Oct 9th issue we did state that we would advise risk takers when to go long and we did so in the next update. Here we stated that players should wait for a pull back of 600 points from the current level. The Dow closed on the 16th at 13992 and then traded the next day as high as 14012 before pulling back. Thus if you subtract 600 points you roughly get 13412 and the markets traded as low as 13407 on the 22nd of this month. Risk takers are now long and should place stops at 13350. Risk takers should understand that one cannot win all the time but when does win the spoils are usually great as was the case with our last rapid win of over 200% in a few short days. Traders should close these positions out on a test of the 13700-13800 ranges as we feel that one more pull back could be in the works.
It's possible that the Dow could test its lows but it would have to break below the 13350 ranges to trigger that possibility. Right now there is only a 50% or less chance of this becoming reality. If the markets were to pull back and test their lows it would just present another wonderful buying opportunity.
All others should use any and all pull backs to open up positions new or add to their positions from the plays listed in our various portfolios
Additional commentary October 31, 2007
The Markets were expecting a quarter point rate cut and that's exactly what the Feds gave them; as this rate cut is somewhat priced in it is possible that the markets could suddenly pull back. Note that Today's volume though higher than the last few days was not extremely high and this suggests that most likely this rate cut was already priced in; it also suggests that the smart money was sitting on the sidelines and watching the show.
Overall we are still bullish but the volatility reading on our indicators have spiked to a new high and thus one can expect massive up and down moves over course of the next few weeks.
"Read not to contradict and confute, nor to believe and take for granted, nor to find talk and discourse, but to weigh and consider." ~ Francis Bacon 1561-1626, British Philosopher, Essayist, Statesman