Just a quick post to point out the two distribution days we’ve had since the Cubes (Nasdaq: QQQQ) started their rally attempt last week. Yesterday saw a $0.65 decline off the day’s high (after touching the 20-day EMA), turning an up day into a down day on increased and above average volume. Also a big distribution day four days ago. These facts, and the fact that the few up days we’ve had lately have all come on weak volume, suggest a rally attempt that is increasingly likely to fail. As always, this is not a prediction, just a cold look at some simple facts and a diagnosis of what’s going on in the market right now. Cheers!
Archive for April, 2005
Yesterday WSJ stated that existing home “[S]ales advanced in all parts of the country except the Northeast, and the gains pushed the median price of an existing home to $195,000, up 11.4% from a year ago. That marked the biggest one-year percentage increase in the median sales price in more than two decades.”
Today’s new-home sales report stated that new-home sales rose 12% in March to a record 1.431 million seasonally adjusted annual rate, crushing the previous record of 1.304 million set in October 2004. The gain was the largest percentage gain in over 11 years. At the same time, however, the median price of a new sold home fell 9.3% from February to March (to $212,300). Year-over-year the median price was up only 1.3%.
Granted, the housing data are volatile, but the numbers are still dramatic (and telling). In the existing homes market we see characteristic of a blowoff top, similar to what you see when a stock goes on a climax run after a long advance. We have accelerated into the final blaze of greed, as the last rush of buyers come into the froth, buying as much as they can, as fast as they can, damn the torpedoes! This is the exact replay of five years ago, except this time substitute the word “house” for the word “tech stock.” You can leave in the crap about “this time is different,” because that’s what all the idiots — I mean true believers — keep saying when someone mentions that there might a bubble in anything.
In the new-homes market we seem to have already turned the corner, with growth decelerating pretty quickly. To get a better look at the slowdown here, which is either a pause to refresh or a leading indicator of what’s to come for the existing homes market, I hopped on over to www.census.gov to pull up some historical data to dump into a spreadsheet and make a quick graph. I only went back a few years because all I wanted to see right now was where the past couple years’ surge peaked and what’s happened since then.
It’s not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.
Chris comment: It probably does usually help to be strong and intelligent, though… all things being equal.
A gap up turned into a big red candle with a close near the low. Throw in the increased and above average volume and we’ve got a distribution day. The positive is that, while the Cubes undercut Monday’s low, hence technically killing the rally attempt that began then, they were able to rebound (slightly) at the close. Price and volume action still show distribution (gains on lighter volume and declines on heavier volume). Cheers!
Day two of the rally attempt off of last week’s breakdown. The attempt comes from an oversold condition, as shown by the lower indicator (stochastic) on the chart, which flashed it’s "buy" signal when the fast (red) line crossed above the slow (purple) line from below a 20 reading. The attempt also comes as earnings season kicks off in earnest, with initial negative surprises and warnings from some consumer and tech companies and then some upside surprises from the likes of Intel, Yahoo, and some others. Also last week we hit some pretty excited levels on some psychological indicators (VIX and put/call trading volume). With these things lining up we darn well should get a rally attempt, the question, as , is "Will it follow through or fail?" We’ll know that soon (by next week at the latest). The past three days on the chart could break either way, from an upside gap creating an island reversal to a break below the lows to end the rally attempt. Cheers!
Justifying a fault doubles it.
-Charles de Gaulle
Don’t let what you can’t do interfere with what you can do.
As per my March 25th posting, new lows would be in order on a failed rally attempt… The rally attempt failed… we got new lows… This could tee us up for the first cleansing (panic selling) in a number of years… which is a rare opportunity to buy at distressed prices (and have people thank you to take those mean stocks off their hands). That bit about "if the rally fails we go lower" might seem like it’s stating the obvious, but it’s actually one of the most important types of thinking there is in the market. I.e., it’s not the news that’s important, it’s the reaction to the news. It’s not the rally attempt that is important, it’s if it follows through or breaks down/fails, which means lower prices are needed to attract enough buying for a sustainable rally. It’s also highly important to look at market and stock moves in relation to the news. It’s the reaction that’s important. I mean the news can be important too, but it’s the reaction that tells you what you need to know to operate in the market. For example…
The most valuable of talents is that of not using two words when one will do.