Saturday, January 12, 2013


TTT Stay On The Right Side January 10, 2013 By tom Leave a Comment (Edit) Spending hours each day watching the intraday action of the stock market may not be possible for the average investor or even most financial advisors. However, you can certainly learn a lot by watching what occurs on a 1-minute chart of the S&P 500. You will see when and how hard the algos hit as it becomes obvious what the indices react to. And in short, watching the action on a very short-term basis can provide a big clue about what is most important to the big money on Wall Street. While stocks are higher since it was announced that the boys and girls in Washington would not to send the U.S. economy into a self-induced recession (aka the fiscal cliff deal) and the S&P closed yesterday within spitting distance of its recent highs for the current bull market, it is important to note that the intraday action hasn’t been terribly upbeat so far this year. In fact, of the six trading days that have occurred so far in 2013, four have seen intraday downtrends – including the last three days in a row. My friends in the glass-is-half-empty camp tell me that this is a bad omen for the stock market as a whole and that stocks are likely to turn lower from here. They point to the global macroeconomic environment and to the slowdown in earnings growth as the reasons behind the incessant intraday selling pressure. I’m told that the “big boys” are bearish and that I should be too. While I pride myself on being analytical and try my darndest to remain impartial in the daily bull/bear arguments, I can’t help but roll my eyes when the calls with the bear camp turn overtly negative. Aren’t these the same guys that told us – without absolute certainty, by the way – that Europe was going to implode in 2012 and wind up taking the rest of the global economy with it? And aren’t a lot of these guys that are soooo darned negative the same bunch of hedgies that have underperformed for three years running now? Frankly, I thought this crowd was supposed to be more objective and able to adapt to changing environments. But then again, I guess these guys remember that John Paulson didn’t make billions for himself by giving up on his thesis. Although I will admit to being a card-carrying member of the glass-is-always-at-least-half-full club and that I do tend to look on the bright side when it comes to the stock market and the U.S. economy, I do indeed see what is happening on an intraday basis lately and it does give me pause. Perhaps I’m the one who has got it wrong. Maybe the budget deal is going to sink both the economy and the stock market in the coming weeks/months. Perhaps the European debt crisis will rear its ugly head again. Maybe the fiscal cliff ordeal did indeed hurt earnings. Perhaps there are major asset allocation programs being run on a daily basis. Or maybe some of the hedgies are unwinding positions slowly. But in any event, there is simply no denying the fact that the intraday action of the market has been downright crummy for much of this year. As long time readers know, I don’t rely on what I “see” happening in the market to guide my trading or exposure/risk management decisions. No, while it may never make me the hit of the cocktail party, I simply rely on my market models to help me stay on the right side of the market’s important moves. As Marty Zweig so famously said a couple decades ago, “Big money is made in the stock market by being on the right side of major moves. I don’t believe in swimming against the tide.” On that score, our market models remain positive this morning, which tells us to give the bulls the benefit of any doubt at this point. However, I’m not at all happy about what is transpiring lately between the bells at the corner of Broad and Wall and I thought you should be aware of it. Stay tuned though because the algos can certainly change their tune in a hurry these days!

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