trading

What Is Going On In the Market

Thursday, May 14th, 2009 | Finance | No Comments

A funny thing has happened in the last 6-8 weeks.  There are almost no sellers.  Literally.  The market has made a massive push and it really struggles to sell or stay down.  It seems almost funny how bad it is to try to short for more than maybe 20 minutes at a time.As most traders find out - fighting the market is pointless, all you can do is react to what you are given.This action sure makes trading hard, the guys that are really getting the most out of it are the buy and hold.

One thing I know is that no matter what these guys do that are chasing and then bidding the market so it does not sell - it will sell eventually.  The only way you actualy make money, whether day trading or longer term investing, is to  lock in profits.Until then, its not reality.  At some point they will tip the tide to the point where a majority are actually fearful of losing gains and then the selling is real.

A key pattern lately has been to break below support and then out of nowhere a massive burst of buying jams the market back to the highs.This sort of thing happens so often now, its completely expected.  Often this can result in a new daily low (the break) , only to see a new daily high 30 minutes later as the buyers relentlessly chase the market (im sure shorts are in there too, trapped like dogs).

Even in the height of the bull market, we would repeatedly have 10-15+% corrections in the market that would last a month or so.And this was what happened when everything was good.Because of this I am not sure what is actually going on.  Several theories are in play that I think about:

  1. Shorts are completely or mostly out of the market.  The SEC messing with the short rules before caused a panic, and now there are many proposals again in regard to uptick rule and shorting.  Rather than get caught, they are staying away from day trading and longer term positioning.
  2. Manipulation factor on high.There is a group of funds or banks backed by the Fed and Treasury whose goal it is to push the market higher to form the opinion that the economy has turned.  The way the rescues happen like clockwork, the ramps into the close every friday, and other very odd trading behavior gives this some credence imo.  Would be easy for the government to just give these guys money to push the market up.
  3. Traders all gone, algo's take over.This can happen also - computerized trading has taken over more of the futures market, which in turn drives stocks.Since no one tries to fight this trend, with all of them doing the same thing it just feeds on itself.  This one I like too because the actual variance of price during the rally pushes is actually uncharacteristically low most of the time.  I have seen the dow futures push up 100 pts in 20 minutes with maybe an 8-9 point max retrace the whole time.Of course this type of thing has happened before, but not nearly as often as it does now on a daily basis.

Whether any of these theories are true or not, I have no idea and may never find out.  All I know is the trading action is very odd and I expect at least half if not more of this gain to be gone when this is done.Note that I am not predicting a top in the market, I am simply stating that what goes up almost always goes down - and the down is usually painfull.  We could hit 9k, 10k etc.I relaly do not see 10,000 as possible right now, because GM, C and a few others are dead - they just don't have the fuel short term.

Maybe everyone just needs to learn to trade again – this is the new market to stay!

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