Climate Check July 28

• Posted by Derek
• on July 28th, 2011

“Price advertises the opportunity.  Time regulates the opportunity.  Volume measures the success or failure of that advertised opportunity.”  James Dalton

Clearly this market is pushing the limit of its long uptrend, not to mention the patience of those seeking a trend to exploit for more than a day.  It’s as though Wall St. is carrying on a parallel poker game to Washington…hanging around long enough to see how the game develops but in the end expecting the other players to blink first.  Yesterday the bulls showed their cards, and didn’t have much of a hand.  It feels as though I’ve been trained to disbelieve any breaks in the last few months, but an objective look at the lunchtime evidence shows real deterioration that needs rescuing ASAP.

While most breadth measures are about as weak as one would expect, the real problem is the impact of Wednesday’s selling thrust.  It came from a period of messy churn, and if not offset within a day or two means the buyers don’t have the goods to compete with the sellers.  Today’s action is about the worst thing possible, an up all morning affair while the underlying trend measure falls.  I’m still completing a thorough backtest of that combo, but it strikes the trader in me as a quantifiable sort of “dead cat bounce” in the spirit of Dalton’s quote above.  We had a couple days in September 2010 when my measure of trend rose even when the market paused for a down day, and it was indicative of an explosive rally underway…this feels the same in a bearish way.

My stats are not meant to predict, but to act as a way to yell “climate change” at me.  I have no way of exploiting every market move, but want to make sure I catch the ones that match my personality.  More importantly, they make things a little more black and white when it comes to taking profits and losses.  Wednesday stopped me out of remaining longs I probably shouldn’t have had anyway; there is absolutely no rush for me to tackle the long side with deteriorating evidence.  Good reports like $CROX & $GMCR are still being bought, but they are becoming rarer amidst the carnage in $JNPR & $AKAM but more importantly $CAT & $MMM.  So the bull case is a deal in DC…lord help us!

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