Rev Shark Blog
Play the OddsBy Rev Shark
Street.com Contributor
8/27/2007 7:26 AM EDT
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Anyone who looks at the charts of the major indices and applies basic rules of technical analysis would conclude that the odds of this market continuing to run straight up without a pullback or rest are very low. Although the odds would seem to favor the bears at this point,
one thing that all experienced market players come to realize is that there are no certainties in the market. Just because it seems reasonable that this market should rest after the move it had last week doesn't mean it will happen, or maybe it will happen only after we have given up our expectations of it happening.
Technical analysis is not about certainties. It is about probabilities. And what we need to understand is why those probabilities favor a pullback at this point.After being pounded, the indices and many stocks bounced back very strongly last week. However, volume was some of the lightest we have seen so far this year, which isn't that surprising given the time of the year, but
still it did not reflect major institutional accumulation. In addition to the light volume, the
indices are now approaching the levels we were at before all the bad news hit about the debt issues.
Why does that action give us the probability of a pullback? Let's consider this on a micro level and think about how various individual market players might view this market.
If you were long two weeks ago and were feeling a lot of anxiety as you sat through the recent nasty dip but did little, what are your inclinations now? If you are back to even after a nasty scare, do you shrug and think, "I guess I'll buy some more"? Or do you breath a sigh of relief that you dodged a bullet and start thinking about maybe cutting back on some of these stocks that caused you so much anxiety?
Keep in mind that people tend to feel the pain of loss much more than they do the joy of gains....
[Fast schon einen philosophische Frage: Arthur Schopenhauer etwa meint, dass es weit mehr Schmerz als Freude auf der Welt gibt, und nennt als Beispiel (sinngemäß): Man vergleiche nur die Freude eines Tieres, das ein anderes Tier auffrisst, mit dem Schmerz des gefressenen.]
...Thus, most of the time when folks have survived a scare and are back to even, they have an inclination to want to escape the situation to some degree, and that is we tend to have overhead resistance at the point where many people are back to even.
Now let's consider the market from the perspective of another group of people, the active traders. Many of them caught the bounce a week ago Thursday and if they were aggressive they have some pretty nice gains especially after the melt-up on Friday. How do these folks think? Are they going to just sit there and continue to ride this market even higher? Folks who caught an intraday bounce are not long-term investors -- they are only going to hold as long as the momentum favors them. The minute things turn down, they tend to hit the eject button.
This is the group that tends to enhance moves as they begin. They join in when the buying takes place and they add to the selling fuel when it does kick in. They aren't looking to hold on. They are looking for their next opportunity, so when resistance starts to kick in they will say sayonara and add to the selling.
A third group that is likely to affect this market at this time are those who are holding high levels of cash and didn't catch the recent bounce. Typically these folks are not inclined to chase stocks higher. They want to be dip-buyers but can get very frustrated when the market goes straight up without them. They will start chasing just to avoid the misery of being left out. They tend to be the fuel for straight-up moves. They are more worried about being left out than they are about avoiding possible losses. Quite often, money managers who are competing against benchmarks fall into this group and they can be surprisingly aggressive when the market is running straight up.
There are many other groups of people out there who affect the market, but these three give us a little better feel for why technical analysis suggests a pullback at this time but that the danger of further upside momentum still exits.
All we can ever do is to try to figure the odds as best we can and act accordingly. The great difficulty of the market is that no matter how rational and logical we may be, there may be other forces that we have overlooked that is driving the action. So we have to make sure we don't let losses grow too big should we be wrong.
Overseas markets are mostly higher in sympathy with the late action in the U.S. on Friday, but U.S. futures are indicating a slightly soft open.
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....Es wurden sogar Arbeiter aus anderen Ländern geholt. Natürlich entstand die Vollbeschäftigung aus mangelnder Effizienz und einem über alle Maßen aufgeblähten Staat inkl. Militär und Stasi. Aber alle waren beschäftigt. Und wie ich schonmal schrieb, haben alleine 100 Mann mit Schaufel Arbeit, wenn ich dem Baggerfahrer den Bagger wegnehme. So kann man durch NICHTEINSATZ vorhandener Technik auch die Statistik auf Vordermann bringen....
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