Tuesday, March 25, 2008

Themes and Ideas for a Tuesday Morning

* Strong Market - Monday was a strong day, with my Demand measure (index of stocks closing above the volatility envelopes surrounding their short-term moving averages) hitting 204 and Supply (index of stocks closing below their envelopes) falling to 18. That means that stocks with significant upside momentum outnumbered those with significant downside momentum by more than 10:1. It is common to see short-term follow-through price strength following such momentum. Note that my Adjusted Cumulative Demand/Supply Index (chart above) is nearing the +20 (overbought) level that has corresponded to subnormal 20-day prospective returns in SPY. Note that new 20 day highs among NASDAQ, NYSE, and ASE stocks rose to 1041 and new 20 day lows fell to 418 on Monday. That is the highest level of new highs since the end of February. I continue to lean to the long side while Demand exceeds Supply and new highs are expanding.

* Themes for the Current Market - Once again, an excellent summary of the themes out there from Abnormal Returns, including problems in the commercial paper market and a very thoughtful post about debt, external default, and inflation. This is the kind of material that's worth reading if you're looking to *understand* markets and their interconnections. See also some juicy links from Chris Perruna, including a very interesting (and accurate, IMO) look at what kinds of trading returns are impressive over a period of time.

* Great Advice - Insightful post from A Dash of Insight highlights the importance of figuring out what markets (and regulators) are *going* to do, not getting caught up in your opinions of what they *should* do. So much of what you read out there are editorials, not market analyses.