Technical View: 12/06/2007
Principles of the Stock Market

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Have You Seen This?

Have You Seen This?

TECHNICAL VIEW.  Three technical points today:


1.        Yesterday was a prime example of how computerized, black box oriented, or just say hedge fund dominated today’s stock market has become.  The market was programmed to go up, right in the face of more and more bad news coming out.  A glaring example of this “buy ‘em all” approach, buying hundreds of stocks all at once with one push of a button yesterday was the price of gold bullion being down about five bucks, trading under $800 an ounce.  And the bullion-tracking streetTracks Gold Trust stock, symbol GLD, being down as well.  But when I checked the widely-followed Philly Stock Exchange Gold & Silver Index (symbol XAU) it was up.  To me that shows when these massive buy or sell orders roll in, hedge funds buy the whole kit and caboodle, not differentiating among sectors at all.  That’s why it’s so difficult for the individual day trader to keep ahead of the market.  Remember I committed to day trading for a whole year two years back and found it incredibly difficult.  I ended the year up a little but not enough to stay with it.  Today’s market action though still leaves swing trading, buying and holding for days or weeks open to all, and profitable.  I’m having quite a good year buying and holding for longer periods.  And when finding a hot group, like solar energy stocks this year, holding for weeks and months.  Schwartz View:  Plus yesterday was a prime example of when a market can’t go down after a couple of days, it generally means it wants to go up.  Put that in your bag of tricks too.


2.        The 50% Rule and Head & Shoulder’s Bottoms.  Yesterday’s big, flashy splashy rally brought both the Dow Industrials and S&P 500 up to close right at their 50% retracement levels (of their October 9th to November 26th declines).  Thus today’s close, if  the early morning strength holds, should put both more than halfway back up to their highs from their recent lows.  According to the 50% Rule, just do a teeter-totter visualization, natural forces should propel both back to near their old highs.  That’s if nothing bad, like an intraday reversal, pops up today.  Schwartz View:  With today’s high volatility, even if the market is up gigundo at 2 p.m., we won’t know for sure until the closing minutes whether the market’s a buy or not based on this rule.  So trade like a pro today, whereas the rule is that amateurs buy near the opening, pros buy near the close.


3.        Seasonals Not So Reliable … But Still.  Hedge funds now look to get ahead of the curve, to gain a “first mover” advantage, so beware the seasonals.  Still, some do work and I saw some stats yesterday, a portion of which I’ve already reported in previous letters but it doesn’t hurt to refresh and supplement, right?  December has been up 75% of the time since 1929.  And is the 2nd best month of the year.  Plus when November was down more than -4%, like this year, the S&P 500 has recaptured all of its losses and more, +5.6%, five out of five years.  Schwartz View:  Everyone is saying breaking above S&P 500 1490 is a big key.  And that if we do, we’ll just zoom back up.  Remember also that powerhouse Goldman Sachs long ago predicted S&P 1600 by the end of 2007.  And remember also that Goldman’s been recently accused of manipulating markets, like most everyone in power used to do back in the olden days (in the early 1900s).  And that MAD MONEY’s Cramer says he used to attempt to move markets himself when he was a full time hedge fund guy.  So traders should have some near term longs as well as longer term shorts.



Posted 12-06-2007 8:18 AM by Richard Schwartz