Thursday, January 15, 2009

Viking Metal, Pattern Studies, and Market Weakness

Back after a few days on the road working with traders. Thanks to Taylor of Fall of Eden for the ride home; great guitar work for metal heads. The stock market decline has been relentless over the last week. There are a few bullish indications short term: Rennie Yang of Market Tells notes favorable expectations short-term as the result of six consecutive lower lows and a couple of other patterns; see also the pattern study from Ripe Trade. Nice call re: weak bounces from Quantifiable Edges. We're seeing some excellent studies from bloggers; I'll be making sure to note these in my Twitter posts.

So back to the relentless decline. As noted via Twitter this AM, we're seeing 2 stocks in my basket qualify as being in moderate uptrends with respect to the Technical Strength measure, zero stocks in neutral (non-trending mode), and 38 in downtrends. Of those 38 issues, 16 qualify as being in strong downtrends, including all the stocks that I follow in the financial sector. It has been very difficult for this market to find any kind of bid in the wake of resumed weakness among the bank and other financial stocks.

I'd encourage readers to review the post on market themes. These intermarket relationships have been particularly helpful in keeping traders on the right side of the market action lately. Weak financial shares, strong Treasuries, and weak commodities fit into a theme that speaks of both economic weakness and trader/investor sentiment.

Note, however, the continued rally among municipal bonds, especially high quality, intermediate-term. The search for yield continues, even amidst the risk aversion in equities. The way the risk aversion sentiment is likely to play out is relative outperformance of higher quality credit vs. junk. As yields on the shorter-term, good quality stuff come in, it will be interesting to see which impulse wins out among investors: the need for yield vs. the need for safety.

Has to be the best trade idea that just won't pay out: buying gold vs. USD. Zero interest rates and economic weakness notwithstanding, in a risk aversion mode, USD benefits. Even the best fundamental ideas just can't get traction if the trader/investor sentiment isn't there.