Still Feeling Good After Friday?
Last Friday's bear market bounce had pundits and a certain financial network's desk anchors as giddy as can be.
Bear markets are rife with false starts and very big on disappointment. Never, ever buy on a rumor such as the one that was hatched to merely push Lehman shares higher. It was obvious that Dick Bove - the analyst that made a buy recommendation because Lehman MAY be bought out, was simply doing his trading desk a favor by allowing them to unload their inventory of Lehman shares at inflated prices. He was the same analyst that was pounding the table for a great buying opportunity in banks - months ago!! That is the Wall Street machine in its purest form, folks.
Momentum indicators along with market internals continue to show a market that has more downside ahead. We discussed the 'hitch' pattern in the Nasdaq momentum oscillator, the less than stellar strength being shown by the NYSE Advance/Decline line, and also the comatose behavior of the NYSE. Want a couple of red flags on Friday's rally? Volume was downright sickly. In thinly traded markets in late August, the side that gets off first usually dictates the trade for the rest of the day. Also, the NYSE gained only .71%, less than half that of the Dow and Nasdaq. THIS MARKET WILL NOT MOVE CONSISTENTLY AND CONSIDERABLY HIGHER UNTIL THE BROAD BASED NYSE COMPOSITE KEEPS PACE OR EVEN LEADS. The NYSE Composite is the best barometer of US institutional buying, because broad based buying by institutions lifts the entire market, not just select segments or indices.
The Dow, S&P, Nasdaq 100, etc. are all more easily moved by short covering, and are also targeted by foreign investors who jumped on the recent monster rally in the dollar. Foreign currencies were converted to dollars, and then those dollars found their way into US equities. What are foreign investors going to buy? With treasury yields relatively low in comparison to other currencies, that leaves very liquid, well known U.S. equities. Just as quickly as that money finds its way in, however, it can find its way out. If the dollar hits resistance and heads significantly lower, that could create another selling spiral. The recent rally in equities was also aided by the nasty selloff in the commodity markets as money fleeing there needed a home.
The bottom line is that until this market stops these buying frenzies based solely on rumors, news, and reactions the bear market will continue. Equity rallies are not sustained unless the reason for buying is solely because the buyer wants to own the stock. If buying is based simply on 'fear of missing a move', more selling will follow. Couple the lack of true buying interest with technicals that are not saying that a bottom is in, and the elusive bottom that so many want so badly may still be some time away.
Bear markets are rife with false starts and very big on disappointment. Never, ever buy on a rumor such as the one that was hatched to merely push Lehman shares higher. It was obvious that Dick Bove - the analyst that made a buy recommendation because Lehman MAY be bought out, was simply doing his trading desk a favor by allowing them to unload their inventory of Lehman shares at inflated prices. He was the same analyst that was pounding the table for a great buying opportunity in banks - months ago!! That is the Wall Street machine in its purest form, folks.
Momentum indicators along with market internals continue to show a market that has more downside ahead. We discussed the 'hitch' pattern in the Nasdaq momentum oscillator, the less than stellar strength being shown by the NYSE Advance/Decline line, and also the comatose behavior of the NYSE. Want a couple of red flags on Friday's rally? Volume was downright sickly. In thinly traded markets in late August, the side that gets off first usually dictates the trade for the rest of the day. Also, the NYSE gained only .71%, less than half that of the Dow and Nasdaq. THIS MARKET WILL NOT MOVE CONSISTENTLY AND CONSIDERABLY HIGHER UNTIL THE BROAD BASED NYSE COMPOSITE KEEPS PACE OR EVEN LEADS. The NYSE Composite is the best barometer of US institutional buying, because broad based buying by institutions lifts the entire market, not just select segments or indices.
The Dow, S&P, Nasdaq 100, etc. are all more easily moved by short covering, and are also targeted by foreign investors who jumped on the recent monster rally in the dollar. Foreign currencies were converted to dollars, and then those dollars found their way into US equities. What are foreign investors going to buy? With treasury yields relatively low in comparison to other currencies, that leaves very liquid, well known U.S. equities. Just as quickly as that money finds its way in, however, it can find its way out. If the dollar hits resistance and heads significantly lower, that could create another selling spiral. The recent rally in equities was also aided by the nasty selloff in the commodity markets as money fleeing there needed a home.
The bottom line is that until this market stops these buying frenzies based solely on rumors, news, and reactions the bear market will continue. Equity rallies are not sustained unless the reason for buying is solely because the buyer wants to own the stock. If buying is based simply on 'fear of missing a move', more selling will follow. Couple the lack of true buying interest with technicals that are not saying that a bottom is in, and the elusive bottom that so many want so badly may still be some time away.
Comments