Friday, December 01, 2006

Friday's Trading Psychology Weblog Links and Stats

It looks as though the server problems with my personal site will take a while to fix. Until that gets sorted out, I'll post daily Trading Psychology Weblog entries on the TraderFeed blog. So, here we go:

Market Ideas:

TraderFeed celebrates its first birthday with a market pattern based on tracking global macro market players.

Following the market's U-turn.

Charles Kirk summarizes aspects of a trading journal, as laid out by Doug Hirschhorn.

Justin Lenarcic summarizes the technical evidence on the market.

Ticker Sense on how the market has behaved on December firsts.

The Big Picture on big discounting by the retailers.

Dollar, yields, oil, housing; excellent links from Abnormal Returns.

Controlled Greed, on why value investing works.

Nice opportunity to preview Brian Shannon's work.

Jon Markman finds opportunity in plastics.

Bonds scream recession. The dollar just screams.

Market Expectations:

Pricing In Recession? Since November 6th, the ten-year yield has moved from 4.71% to 4.46%. The Euro has moved from 1.275 to the dollar to 1.326. The gold ETF has moved from 61.89 to 64.39. U.S. stocks (S&P 500) are up over that time, but the German DAX, British FTSE, and French CAC 40 are down from their highs. A strong set of currencies isn't likely to help their export business.

Market Summary:

The market lower on Thursday before rallying and then selling off late in the session. We finished above the day's average price of ES 1401.5, continuing the short-term uptrend. The Power Measure closed positive, though off its high. Once again, buying dominated the broad market, with the Adjusted TICK at +442. Action was more neutral in the large caps, however, with the Institutional Composite at -29. Demand dropped to 86; Supply rose to 47. New 20 day highs rose to 1500; new 20 day lows fell to 375. Institutional Momentum rose to a still tepid -40, with 8 stocks in intermediate-term uptrends, 8 in downtrends, and 1 neutral. I am viewing this as a broad trading range and am carefully watching the tape as we approach the range highs. As long as we get day over day price highs and an expansion of new 20-day highs, the uptrend will remain intact.


Peter Bernhardt said...

Good morning, Brett. One of the market sectors I have been following with fascination is the home builders. Yesterday they exploded upward 4% overall (some rose as much as 10%) on a very lukewarm upgrade from a respected analyst.

His basis for the upgrade (from "sell" to "neutral") was that a November survey of many key real estate markets indicated an increase in foot traffic. He predicted this would lead to increased sales and stabilizing prices.

While I don't find that line of reasoning plausible and rather see the timing of the upgrade very suspicious, I was surprised at how this rocked the trading in these stocks.

You know, we have been hearing for at least 2 months now that housing has bottomed -- from vested interests, like the NAR and J.Cramer -- but the facts continue to show an increasing (indeed, worsening) slowdown.

In trying to get a handle on this from a trading and investment perspective, I'm reminded of one of Gartman's rules that said (and I paraphrase) that you should never trade against the market, even if you have the economic fundamentals on your side.

By the same token, the HBs still have an enormous amount of institutional sponsorship. So I also wonder if this a replay of other sectors in times past, where they ran up on false pretenses in order to provide coverage for large selling.

Time will tell, I suppose.

Anyway, always appreciate your perspectives on the psychology of the markets.

Brett Steenbarger, Ph.D. said...

Hi Peter,

Thanks for the very interesting observations about this sector. My hunch is that there is a large short position on many of these stocks and that can lead to violent short-covering rallies. The same thing happened in the 2001-2002 period with tech stocks. A lot of people got smoked trying to pick a bottom after one of those rallies. It seems like a sector where everything has been tarnished, which means that there might be a good pairs trade after these short covering squalls that goes long the homebuilders in the markets holding up the best (and likely to grow in the future) and short the homebuilders most exposed to the formerly hot areas with current huge inventory.