What A Difference A Day Makes
As of today, everyone is proclaiming the March lows have successfully been tested and the new bull market has begun. On June 11th, the market made an intra day high on the S&P at 956.23. Everything was rosy on Wall Street again. The new administration was in charge and radical change was taking place. The market seemed to have accepted the new regulations that the new leaders were putting into place. On the surface, it really appeared the President Obama's stimulus plan was working and perhaps the world can print their way out of this financial crisis. The previous administration tried three separate stimulus plans only to see more problems occur. The money seemed to have been wasted. Oil was soaring once again, as it felt like 2007 all over again. Is it really different this time? Can they really inflate this economy back to health?
On July 7th, the talking heads in the media were all proclaiming a head and shoulders top was in place and the market should decline down to the 820 level on the S&P and perhaps possibly test the March lows. On July 10th, I heard the average person talking about a 'head and shoulders' top. Head and shoulders are extremely bearish patterns. These same people who were talking about the head and shoulders top, just days before, thought it was a shampoo developed by Proctor and Gamble. All of the sudden, everyone was a market technician and an expert chartist. What happened to the green shoots from June 11th? After all, this was the first correction since the market bottomed on March 6th at the low of 666.79. It is sometimes comical how people expect things to go straight to the moon without a retrace or pullback after a 40 percent rally. This just is not the way that markets function.
On July 10th, after a one month pullback, the market seemed to be floundering. The crowd was in on the short side eagerly awaiting the big decline. The following week starting July 12th-17th was options expiration week and the markets began a massive rally. The low print on the S&P that Monday July 12th was 875.81. In just six trading days the SPX made a new closing high of 951.13. This is a move of over 8 percent and everyone is talking about green shoots again. Did you really think the shorts and the buyers of put options were really going to cash in that easily? What changed all of the sudden? What happened to retesting the lows?
In the world of trading and investing there is an old saying that should be remembered, 'the best moves come from failed moves'. Therefore, when the media or the so called market mavens are talking about a breakdown or breakout pattern to the world, rarely will you see that pattern play out. The market never does what the crowd expects. In just six short days green shoots are back and sprouting everywhere. The market has fully recaptured a full months worth of declines in less than seven trading days. The media and its talking heads are once again wearing their bull costume. Dow 10,000 is being proclaimed on every channel on the tube. I want off this bullish train ride, something stinks. What a difference a day makes!
Nicholas Santiago,
InTheMoneyStocks
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07-22-2009, 02:30 AM
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