Thursday, February 23, 2012

Market Madness Daily Market Update - 02/23/2012

Well today, in an unsurprising reversal from yesterday, market indices fought higher and left behind them a fairly strong tape. This coming after only the slightest rest/correction of the past couple days.
What was interesting today was the change in flow of money from large caps back to the more speculative small caps, which had been under-performing as of late.

I was all but certain (a dangerous position when it comes to markets) that the steadily building weakness, first in small caps and then more recently in large caps, was pointing to a meaningful downward price correction. I still feel such an event is imminent but it is hard to have too much conviction in that view after today's action. Theories are useful but price is king, the best indicator of them all. And we should always at least listen to what it is saying--regardless of our own personal opinions--and be prepared to change our minds, and our strategies.

The image below is a 90 day chart with an intra-day view using 4 hour bars. It quite clearly shows the steadily decreasing volatility over the last few months, and highlights the notable "corrections" and their diminishing magnitude and duration. This appears to be quite bullish, and indeed it has been to date. However, volatility often reaches very low levels before exploding upward. A calm before the storm situation.

(Click for full size image in a new window)
2/23/12 spx

Another bit of evidence for this scenario is the continuing out-performance of the precious metals. Gold and silver screamed higher again today, making new multi-month highs. This tends to suggest to me that some smart money somewhere knows something I don't and is laying down some heavy hedges.
Greece? Benny and the Inkjets?
Who knows at this point. Could be nothing at all for that matter.

Stay safe out there!

Wednesday, February 22, 2012

02/22/2012 Market Recap

Is that a red candle I see on my screen? Nah, it couldn't be. Could it?

It turns out my eyes were not deceiving me and most indices did indeed manage to finish in the red. And by more than a few ticks! (though still not by all that much).

Our favourite index to watch, the S&P 500, shed about 4.5 points on a low volume day. But the index was notably more volatile than the average of the last few months. This is further sign of weakness and we expect that selling pressure will increase over the next couple days going into the weekend. That said, this market has been bullet-proof for going on 3 months now and there are a lot of powerful forces working to keep this puppy propped up in an election year and betting against that aggressively can be awfully risky (and costly).

Small-cap and Tech indices saw the worst of the selling as money continues to move out of small-cap, speculative stocks into large-cap blue chips. I read this development as a bearish sign as well but these indices were a tad overheated so this could just be a cool-off period before the next leg up.

Gold exploded upward today and is reaching its nearest resistance level at that round number of 1800. If it can convincingly break through there then it's obviously off to the races to challenge those August nominal highs. The gold market is laughably broken and corrupt these days though so unfortunately, I have no strong conviction one way or another.

Stay safe out there!
And remember; humility and an open mind are absolutely crucial to surviving the financial markets so whatever your view is, don't get too attached to it. And be ready to change your strategy on a moments notice.