Thursday, January 12, 2012

Market Xray, don't trust your gut, TRUST IT's GUT

Only price pays, but just watching price can give you an intentionally misleading picture.

Market internals are important, because Ms market can put on a fancy new dress or hike up that hem in a bullish social mode, but the guts don't lie and you should be bamboozled by the lipstick on a pig either. Look at the guts.

And look at the gaps, nothing changed, futures are still driving this market, if you miss the gaps, you miss the whole thing. 2011 was essentially a "flat year", for those chasing Quant-Bots, they probably got worked over.

The entire year so far has "felt bullish" but it is all due to ONE gap up. Amazing.

Volume divergence is speaking strongly that this non existant bull run is bull.

And finally my 4/4 rule. After 4 days and 4 percent, people will believe that some pattern is in play. The 2009 H&S fakeout used the 4 percent rule, and then they ramped against the bears.

The S&P has broke an Inverted Head and Shoulder pattern, and has now marched up about 4% and 4 plus days. So now people are second guessing whether they should be sitting out or bearish, ready to go long. Whammo! a big gap down and then deer in the headlights.

The same old games have worked for decades, it is our job to classify, assign metrics, and then identify these deceptions in real time. And then place trades with reasonable position size based on probabilities, using a mis-mash of "toggle rules" combined with some subjective pattern recognition. Identify edges, backtest them, and then keep powder dry until the probability is high enough. Recognize that cash is your strongest position, be proud of being in cash.

Or you could just follow your gut, how is that working for ya?

Are you up for it? I am.


  1. the market is staying pretty much matched up on a stocks current p/e, on more than a few stocks i follow.
    here's how KSS lines up.

  2. Just one chart this evening.  Found this on the S&P100.  It speaks for itself for sure.

  3. Frog boil up before an epic launch or epic fail?

  4. I like it, wish it had more points to get to the mid BB

  5. The same type of numbers has been lining up on INTC. I've been shorting it at 26, getting out at 25.5 or so (2X now)
    click on my avatar, and follow link to INTC chart.

  6. JAN 19th both pre-market and ah, there are a lot of market moving
    earnings reports.
    I’m moving to 75% cash.
    look who's reporting on the 19th.

  7. I guess 8 means before the open and 4 means after the close?

  8. Thanks for the summary.  Hoping the 4x4 truck rolls over this baby


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