Wednesday, February 25, 2009

Market whipsaw

The volatility in the market is amazing these days. I imagine that skilled daytraders can make a killing but for the average Joe it is too much. Three percent movement is just insane either way you take it. Without standards to go by, one can't help but be whipsawed around.

I have some beliefs regarding fundamentals. There are too many unknowns. Deleveraging of these new banks (trading firms that used to be like 30:1 and now might have 10:1 limit) might still be going on. I have no idea about the "banks gotta lend money" again story but it sounds like bunk to me. I do not know anyone trying to borrow that has been refused. Maybe this is just about loaning money to the Circuit Citys of the world to prop them up? Hiring has not started. Capital resources are being deployed absent free market ideals, this will slow recovery. While this is not well written, there is too much that is bad for this to be a time to enter the market.

What if we have seen the bottom? Picture an army about to battle hand to hand. Do you want to be the first one charging? Not me but neither do I want to be last. The first might get all the glory or cash, but they are more likely to be slaughtered.

How can we know it is safe to enter? I will look for several things. IBD should call rally mode. Market should start moving higher and make higher highs. Large volume should come in. There should be solid market leadership (this is something I have concerns about properly spotting). And the shorter term averages should be trading above the longer term ones. More on this here:

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