The months of March and April saw market conditions become very overbought with a steady climb in prices. Normally, a genuine bull market has 'breathing'. This means a stair step effect, not a volcanic eruption euphoria with 'all' buy programs. Rallies that have pullbacks then higher highs are bullish delights for 'old school' technicians as the excesses are purged quickly with the pullbacks. The rallies are measured, predictable or orderly. Rational thought prevails in slow methodical foundational rallies while greed induced insanity prevails in emotional change abnormalities. March and April represented an abnormality that was a 'mutant bull'. The old adage of sage experienced traders is that "going down is a raceway, going up is a hill climb", means that declines are quicker and shorter lived than rallies. The past 3 weeks have purged the excesses with accompanying extreme selling ticks only rivaled in other panicky environments. My daily CCT actually negated 2/3 of the positives, that took 9 months to accumulate, in weeks rather than months. This is not what an investor needs or wants. The past 10 full years have actually netted minus numbers in most major indices. The 'easy' money is certainly not in the buy-hold mentality. Traders thrive, investors grow old!
Here is what to expect over the next several months. This market is badly damaged. It was a finely trained young runner with confidence as each stride forward was effortless. The young speed demon arched their back and cocked their head in conceited defiance of all adversarial elements A.K.A. bad news events; as just bumps to stride across with a quickening pace. The hole in the road on the horizon was looming but invisible when you are looking at the star struck with fantasies of "no danger, I am invincible".
We will rally with more caution from this point forward. Declines will be sporadic but persistent as the young runner now has a limp. The speed of the rallies will lessen as the big plus ticks will be also sporadic and inconsistent. The runner can still attempt to sprint with considerable pain. A constant reminder of how looking at the stars is not a vision but a blinder of reality.
The next several months will be a traders' delight as rallies and declines will be easier to quantify. Measured moves will be chartable! Fundamentalists will be despised since a technical market analyst is number oriented and a fundamentalist abstract oriented. Will we decline into the abyss? No! Will we climb to the stars? No! The energy has been zapped from this market. Unfortunately the U.S. market is in the hands of foreign influences. Recent Globex activity in the S&P futures actually shows wider swings than the day sessions do in the majority of the days. Volume in the 'big' indices comes from the world more than the U.S.
Computers are pre-programmed to respond on price cues which exacerbates moves but contains as well. Tape reading is the only consistent means of profits. I will try to illustrate in the advisory over the remainder of 2010 where and how the computers are set to operate. Just remember, a seasoned tape readers sees, a computer reacts blindly.
Do you want clear sight in the coming months? The pot of gold lies at the foot of the rainbow not in the stars!