the Good, the Bad, and the Churn

Oh the churn, don’t you all yearn for those days last fall when the market was trading like a schitzo who’d lost their meds.  I remember sitting at my desk saying, they all hate this now, but in a year when things are dead silent they’ll wish the $VIX was back at 60 again.  The market like many other things in life, obeys the following principal: the pendulum often swings too far in both directions, as a result of itself (or something along those lines).  When thinking about international relations, nation states always become overly isolationist after periods in which they engage in a high frequency of conflict.  Leaders who follow their adventurous predecessors are most always far more reserved in their actions.  Markets which have experienced a high degree of volatility often precede a period of very low volatility.  This is the balance and rhythm to life.

I’ve been mentioning for a while that I felt there was a lot of institutional selling taking place into the end of the year.  I’ve also been adamant about the fact that tech would be the leader if we moved higher, and to stay the hell away from the financials on the long side.  It seems that at least two of those three were great calls.  But I still believe we saw large institutions close their books and greatly reduce risk in October to guarantee a solidly positive year after the drubbing they all took in 08′.

This has obviously turned into a stock pickers market.  Instead of being whipped around all over the place by the broader indices, stocks are carving out their own paths, making it far easier to see the wheat from the chaff.  I’ve got a long list of stocks on my screens that shows excellent momentum and is giving no sign of slowing down.  I’ve got another long list of stocks that look prepared to break out in a big way.  I’ve got yet another list of stocks that can’t get out of their own way.  The point here is that opportunities abound, and you need to take your eyes off the indices.

The best way to play this market is to pay attention to sector strength and weakness, find the leaders and the laggards, and ride them.  Wait for trending stocks to come back towards the 20 day moving average and take positions there.  Look for large triangular consolidation patterns, in trending markets they most always resolve themselves in the direction of the trend.

One interesting point I’m seeing now is a large resistance level in the transports $IYT.  We’ve been bumping up against the high from the crash reversal.  I say the crash reversal, because the overall equity market crash took place in October of 08′, although the transports were obviously not done with their greater than 60% sell off.  No other sector besides the financials showed as much relative weakness to the market back in March.  This important level, denoted by the red line, sits at about 76.  The chart you see below obviously represents an inverse head and shoulders bottom pattern.  In the short term, the transports look to be rolling over a bit, I wouldn’t be surprised to see another test of the 50 day moving average, now located at 72.

Lastly, please take a moment to bash your head in if you believed the Motorola $MOT Droid was going to sell any significant number of phones.  I don’t cheerlead or strut around proclaiming how omniscient I am, none of it really matters unless you have money in the trade, and even then, it’s not in good taste.  But for a second now, please just take a look at 5 charts, real quick, $MOT, $PALM, $NOK, $AAPL, $GOOG.  If it’s not obvious to you who is winning the mobile internet war, you need a better pair of glasses.  Apple and Google are head and shoulders above the competition when it comes to innovation.  The other pretenders are holding their stock prices up with smoke and mirrors, which are slowing being run over by large tanks in the form of iPhone sales numbers.  The Droid is a crappy piece of hardware, Palm’s Pre was a sham from the start, and Nokia hasn’t even tried to compete in this market.  It’s so glaringly obvious that Google is about to release an amazing piece of hardware to go with its great Android operating system, just look at the stock for god sake.

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