chicha's journal

C

chicha

start my journal of market view and trading here so that it does not show up in the front page.

The market has been trying to rise from its oversold condition and boo any sellers who don't cover as quick as possible. The oversold condition, progressively eased US-Iraq tension, option expiration, and traders short-covering contributed enough catalyst to rally the market in the past two weeks. This kind of sentiment seems continuing for the next couple of weeks. Analysts and traders are touting big sideline money waiting to enter the market. Whether it is true, I don't know. Economic condition seems being improving some from its worst shape. The difference between this rally from the one in last October is that shorters are smarter and covering quicker (or being given enough time). Since the Iraq situation has not be settled one way or another, perhaps we are still going to see increasing intraday volatility but little commitment (especially to the downside). All could change when that legendary big sideline money decide to enter just like it did in the last October, or maybe vanish in the midst.
 
The market has been volatile but moved relatively little in the past two weeks. As the showdown in the U.N. security council on Iraq is approaching, the market is likely to start to develop its next mid term trend. Traders and investors want to buy on brighter outlook. But the current geopolitical uncertainty keep them from putting large bets firmly as many just put on bets and exit quickly. The more clear the outcome of the Iraq issue becomes, the more commitment will be placed to move the market. It appears now that an improving no-war situation is likely to rally the market although the U.S. government will definitely lose its face. Also it seems that a war led by a strong coalition will relief the market ultimately before its shift focus away from the issue. However, unlimited uncertain tug war between the two sides in the U.N. security council will make the bulls less patience. By the way, as the development on the Korea peninsula is getting on top of the news more seriously, the probability of further escalation may be low as U.S. has its hands full on the Iraq issue.

As a summary, the current trading range is likely to come to a conclusion one way or another in the the next two weeks if not just one week.
 
March madness has not been taking place so far in the sense of a sizable rally. Major indices is trading at the bottom of their recent range. However, bulls never give in without a fight to squeeze out weak bears as many as possible. In fact both short-term bulls and bears has been in advantage to make considerable profit in the past three weeks as long as they were strong hands to hold on their lucky entries and exit at profit targets. How could this happen? Well, it is the tremendous increasing short-term volatility driven by all sorts of news/rumors on the economic and the geopolitical fronts. Although, in the next week, the volatility seems going for a peak as the final decision on Iraq will be revealed, the opportunity for lucky strong-hand bulls and bears could fade. If the market breaks out, either the bulls or the bears are gonna hurt. On the bearish side, the current employment report seems to confirm a no-soon-recovery in the first two thirds of 2003. Also the current non-decisive situation on Iraq is even more bearish. America is losing its steaks to its old allies. On the bullish side, the bad situation are pushed to a Fed-rate-cut scenario or a bias change for more stimulation. Also never underestimate a late March madness pushed by institutional investors to dress up their quarterly results. Overall, an very interesting week ahead but should still be normal for short-term traders to make or lose money.

Good luck.
 
A march madness stampedes the U.S. and European stock markets today. All major indices see biggest gains in the year. Although the economic news and earning reports are all negative earlier today, the markets seem enjoying a temporary relief from geopolitical concerns, the delay of the vote on the second Iraq resolution at U.N., and a possible shorter war given some cooperation from Iraqi army. The major indices continues rising from their recovery from a broken-down low yesterday to the high/mid end of the recent range. NASDAQ composite index almost breaks out the range and erase all loss for the year. It is very difficult to predict the market direction in the next few sessions given so many factors involved. One thing we can be sure about is the greater short-term volatility. Remember, options and futures will expire the next Friday. Fund performance reports are due by the end of the month. However, a U.N. showdown and a war against Iraq are more and more closer.
 
The past week witnessed a tremendous rally in the stock market which brought the major indices to the upper range of their recent trading ranges from breaking-down lows. A delayed U.N. vote on Iraq did not drag the market down long enough on Wednesday before a strong rally started in the last hour and continued into a monster one in five month on Thursday. Although economic news and earning reports were mostly negative in the week, the indices held the gains for the week.

Now, I think I just have a possible explanation for the rally started in the last hour of Wednesday. Financial advisor and talk show host, Bob Brinker issued a buy signal on stock equities with new asset allocation to his subscribers of MarketTimer newsletter on last Tuesday (March 11, 2003). He sees SP500 at 800 an entry opportunity due to the recent extreme market weakness. I think this event contributed to the rally in the last hour on Wednesday. Because Mr. Brinker has a large number of subscribers who use index funds as investment vehicles. It seems that he is counting on a recovery in later half of 2003. However, whether this is a root cause for the rally and whether the rally will continue are unknown to me. I heard Mr. Brinker said in his program that he did not suggest chasing the rally now.

For those who are not familiar with Bob Brinker, Mr. Brinker has excellent reputation in the past decade, especially after his call for exiting the market before the crash in 2000. This is the first buy signal that I know since early 2002 when I started to listen to his money talk show regularly. Mr. Brinker believes that the current long-term bearish mega trends can last from 5 to 20 years. He calls it a secular bear market. But he also believes that there will be one or more cyclic bull markets that last more than one year. To make my introduction or comment less than an advertisement, I'd like to point out Mr. Brinker also made a controversial call to buy QQQ in later 2000. He claimed it was only a recommendation for small amount of speculative capitals.

Now, we might have some idea of what already happened. But what will happen next in short term is still quite uncertain. So many things that may move the market one way or another are happening, including the war on Iraq, the split in the U.N. security council, the FOMC meeting, some key economic data and earning report from financial banks. But it seems the general sentiment now is the hope for the removal of war uncertainty and a brighter economic future. In short term, a bigger rally may not be sustainable. But in long term, if we have some money at disposal, enter long diversified positions from times to times should not be a bad idea.
 
If we had called the week before the past week madness stampeding on the street, I have to admit that I already use up my vocabulary to describe the past week which extends the giant rally into the eighth day and tops as the best week since 1982. That is a twenty-one year historical record. (Please advise me a word to characterize it). The major stock indices broke out from the upper bounds of their recent trading ranges, taking out 200-day moving averages, and all reaching generously positive territory for the year. The past week also marked the second quadruple witching day for the expiration of futures and options. The statistical and implied volatility remains high in this kind of one way market.

The overall market has ignored almost all economic and company news in the week. The ongoing war took away attentions from traders. Enthusiasm is on the expectation for a short war and a boost of economy some point later this year. Underneath, I believe we see the effect of sideline money rushing into the stock market from cash and bonds. So far, we don't know exactly the scale in terms of cash flow and how much pumping in the price without real buying interests. However, we should sense that some if not majority of big long-waited sideline money made the eight straight day a reality.

In my opinion, a sudden sizable decline is not likely except a terrorist attack or something unexpected in the war happens, which I personally (and many of good people I believe) strongly hate to see. There could be some mild retracement when the market shifts its attention from the war back to the economy. Look carefully on the extreme positive news for signals to sell on top, and mild negative news for signals to buy at retracement. For long-term investors, use dollar-cost-averaging over time, not necessarily predicting retracement, in the area (SP500: 800-880) is recommended by financial advisors like Bob Brinker. If the brighter outlook confirms up, an over-bought condition may continue much longer than many anticipation just like what happened in the second half of 1982.
 
Stocks indeed retreated four out of five past sessions, among which the largest decline so-far in this year on Monday ended the spectacular eight straight largest wining sessions in the past 23 years. This is not a surprise from both technical and fundamental points of view, especially when normal nasty war news start to irritate traders gradually. Overall, there is not too much catalysts. Intraday volatility remains high. For instance large gap down at opens actually resulted break even in the mid-day. Little catalyst could take major indices breaking down 61.8% retracement while the markets price out the expectation for a quick end of the war.

Next week, several important economic data will be released and pre-earning season is about to begin. And the war picture hopefully becomes somewhat clear if not more. These will affect the market direction, especially the test of retracement support with a potential break-down. Long-term investors may want to lengthen their time frames for a dollar-cost-averaging approach to get their percentage of disposable capital back into the market.

The expectation on a war in some degree works similarly as the expectation/sentiment on a market. They are both spiral effect and continuous battle between optimism and pessimism. However, fundamental factors will finally take over. The United States will prevail. My best wish is a quick end in month and short suffering of all people involved.
 
The stock market ended a week of retracement and jumped back. Positive war news faded out negative important economic reports and company earnings, once again. The American led coalition force rapidly approached to Baghdad, destroying elite forces of Saddam's regime, controlling Baghdad airport close to the city center, and rescuing a female POW amazingly. All these development enthused the traders to buy stocks. The bet builds upon the expectation of a quick end of war and uncertainty capping on the business spending and consumer confidence. Intraday volatility remains high especially when news like Saddam went on TV hit the wire.

Many broad market indices now sit at the 200 day moving average which served as a declining resistance for quite a few times. Giving the fact that the earning season will officially start next week. It is unclear whether this resistance will be taken out easily in a short time if the war continue to go extremely well. It can be argued in both ways. On one hand, the technical situation is somewhat like that of mid-October last year, before political outcome and Fed rate decision. Even if the company news are negative than expected, will the market necessarily break down? On the other hand, it is somewhat like mid January while the market is under major resistance while optimism is relatively high. Will the war ends in the speed like it progressed in the past week? How many force of Saddam regime had fought and will fight? The answer is out there when we get to the point.
 
You must log in or register to reply here.
Back
Top