Sorry for the delay in reporting in this today. I started out my day looking at the futures and pre-market. I wondering how the market rose as far as it did and ended up staring at my morning cereal before heading off to work. To me there isn't a logical reason for the rise. In fact there are many why it should be going in the other direction. So I started looking at the charts when I got to my corner office on the 25th. Floor of the Econintersect building.
I have always been a chartest of some sort at one time or another and at one time they were a reliable way to help sift through the tea-leaves. Today is no exception in looking at a few charts trying unproductively to read into them for any signs of revelations. There are none today I am afraid and for another day I am back to guessing.
Those days of drawing lines on the charts seem far behind us. New methods of gleaning favorable forecasting abilities from the market tea-leaves are being sought after without much success. We as humans are at a distinct disadvantage of today's market action and determining trends. We are not likely to beat the odds of determining market trends when dealing with the machines that do 70% of trading in today's markets either.
The algo traders (HFT) using high speed computers can sense minute changes in market direction because of various factors available to them and make a few cents on the trade. One questionable method is being able to have a first look at what traders are going to do and place orders in front of theirs. I call that cheating. Another is to flood the system with fake orders to sway the "mood" and then cancel them. All of this unfair and bogus trading within a fraction of a second; 5,000 trades faster than you can put down your coffee cup.
Now with the constant meddling of the government, algo traders and DaBoyz most charts are nothing but a collection of historical data points where the market was at one point in time. The charts used to represent the 'herd effect' of what many traders and investors thought of the market at any given time. You could clearly see where tops, bottoms and resistance was going to be and 'everybody' acted upon them. Today, the squiggly chart lines are meaningless points of interest with about as much prognosticating abilities of writing on a milk carton and the arrangement of cereal flakes.
Adding to the problem is the low volume of trades that is currently 30% below what it was a year ago. You can't have a quorum unless everyone votes to make any data point meaningful and we are at an all time low of human participation. Not very many sentient carbon based life forms are placing trades into today's market aggregation of total volume. The low volume figures that continue to persist make it easier for markets to be manipulated by the machines and the 'five-fingered-financiers' at the midnight market and that is not a good thing.
This morning, and all of last week for that matter, pundits have been saying “I fully expect the uptrend to continue and more new highs to be made”. They have been right, so far and yes I could have made several long trades and made a nice profit but at what risk? Not one pundit predicted the explosion Tuesday when the market took off because of some inconsequential news event.
If one small news event event can make the market soar like it did on Tuesday, doesn't it make sense that another unimportant phenomenon could send it crashing? Therein lies the problem we live with from day to day in this market. It is the inability to intelligently make decisions concerning the future.
How about if we have a real problem to occur in this weak market environment? Yes, the markets of the World are in poor shape; countries are ready to declare bankruptcy and World debt continues to climb unabated. And yet the market continue to melt up against these unfavorable headwinds. Can anyone see why I question this upward trend as being valid? I see a debilitated market fraught with serious World problems and unsolvable issues waiting to crash. For one I am not willing to get caught with my pants down around my ankles making long term bets.
Lately while watching certain long and short ETF's, one will have noticed that the total daily swings have been on the pale side and has taken days to accumulate swings that have been the past been made in hours. This in itself is telling, because there is a lack of conviction in the belief the market is on a strong tract upward. My proprietary strength indicators continually show increasing weakness as this markets rises.
Ladies and gentlemen, this market is going to break and it isn't going to be pretty. What I am hoping for is a gradual decline rather than a cataclysmic waterfall. A steep fall really doesn't accomplish much except scare the hell out of all the folks that got their 401's burned and retirement ruined in the past several years. (By the algo traders and incompetent politicians I might add) A serious decline is in order and could start soon as next month. What I am afraid of is Israel taking proactive measures against Iran in the next several months speeding up the time frame. War with Iran would cause a waterfall effect on the market and would change its face in ways I can't even begin to describe.
The whole point of this missive was to point out that I don't know with any certainty what is going to happen next and if you do please share your insights with me. Guessing and opinions are not allowed as I can get all of those I want from the 'Main Stream Neurosis Broadcasting Company' (MSNBC) .
Written by Gary