Daily Market Update – February 25, 2014 (Close)

This morning appears to be a repeat of the signs coming from yesterday’s pre-open, albeit in the opposite direction.

By the closing bell it distinguished itself from yesterday by actually following the early tone and never making any attempt to stray

This morning all signs pointed to a listless open with no catalyst in sight to propel the market convincingly in either direction, but we all know what happened yesterday. Same absence of catalyst, but very different outcome in magnitude and direction.

While yesterday’s market was nearly 200 points higher in the mid-afternoon, most people would have still been content with a market closing 103 points higher.

Except for the technicians.

They are the ones who believe that they have the answer for why the market went so much higher yesterday. It all had to do with the S&P 500 exceeding its previous intra-day high and setting off buy programs. Others speculated that a short squeeze was going on, as well.

Since the algorithms that start these buying programs are written by mere mortals someone, at every firm that utilizes such algorithms, knows whether that S&P 500 level was, in fact, the tripping point to begin systemic buying, while we’re left to speculate, because it’s a crime to suggest that you just don’t know what caused a significant move.

However, there was never any kind of frenzy or “Fear of Missing Out” (FOMO) that characterizes real short squeezes. Also, short squeezes usually don’t just wither away in the trading session, as did half of yesterday’s gain. Short squeezes tend to pick up steam going into the close because no one wants to be left short going into a relative vacuum.

A quick look at the previous recoveries after attempted corrections does show that there was typically a strong push forward as  the market climbed back to the previous high point from which the correction attempt began. So on this one the technicians may have the real answer to yesterday’s market.

That’s the good news. At least if we have another correction attempt that shows signs of a quick recovery, there’s reason to aggressively participate in anticipation of that move beyond the highs.

The bad thing is that those same technicians express concern about the market being unable to hold those highs going into yesterday’s close, which saw the market drop nearly 100 points and in an accelerating manner in the final 20 minutes of trading.

Like most strategies or approaches to investing, it’s usually a bad idea to pick and choose what aspects of the strategy to use and which signals to ignore. That’s no discipline at all.

Since I’m not a big advocate of technical analysis, as the successes are widely publicized, but the false positives and false negatives are forever buried and lost, yesterday’s late session turnaround is just something that gets filed away, it’s meaning, if any to be determined later.

Yesterday didn’t offer too many opportunities to spend money unless you were interested in chasing stocks. There was some limited chance to establish cover, but by and l
arge it was another day that I enjoyed being an observer, as it is nice seeing your holdings move higher, especially when there’s no real reason that anyone can identify.

Today, the money was still there to be spent, although there was a little bit of a pessimistic overhang from the technical perspective and the pre-open mildly reflected that pessimism. Unfortunately, as the day went on there really weren’t any new opportunities to be found.

Anyway, while the market did give back much of the gain yesterday, what we have not seen in the past 20 months or so is a market that quickly gives back the ground that it had regained following a correction attempt. Instead, it has, for the most part been a march forward, punctuated by some correction attempts along the way. If you look at the chart for the past year, it has almost been like clockwork. Every two months a relative low and then a rebound and back to a relative low. If that pattern continues, our next relative low should be sometime in late March 2014 or early April.

Do I wholeheartedly believe that?

No, but it does serve as some guidance and comfort.

 

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