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Thursday, October 7, 2010

Market Thought... giddy

I am getting a sense of giddiness. When I look across my (140 or so) charts I see a distinct theme with many of them: a transition.

One of the best ways to describe this is via IBM. IBM is very over bought, and has been overbought for about a month now. (I made very good money in the name, and did not hesitate to sell.) But when I combine this consistent fact of being overbought (which is nothing more than very consistent buyers), and the formation of the current market set up, I find a very interesting conclusion. The market is entering a period of price realignment.

Let me explain.

When looking at the SP500 on a technical basis with respect to the current market dynamic, I see little to no resistance until the 1190s.

The only real resistance was 1150, from the March 09 rally's trading dynamic. An argument can be made that there is resistance around 1170-1175. However the SMAs played such a major role as support/resistance during April and May, IMO, this current run should give no relevancy to those levels. With out those resistance levels, the only road block left is the weekly SMA's. And the lowest one is the 200SMA near 1197.

With this potential market move, many equities are terribly under priced. And, again, the best example of that is IBM. A look of the trailing PE before the crash was 14-16 for IBM. Post crash, it was 10-12. As of today, the trailing PE is 13.11.

Since payrolls and jobs are now viewed as a leading indicator, the pay roll number is being watched closely. If the number is horrible, then the markets will sell off, technicals be damned. If the number is average, then the markets may sell off some, recover but be boring. (But this scenario allows for the above to play out.) If the number is good, watch your head.

Basically, I took on a light short before the end of the day just in case there is a morning sell off. What ever happens, the only way I am not going to be purchasing stuff tomorrow is if the number is really really bad. (I will still cover the short, but wait for the dust to settle before buying stuff up.)

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