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someting i've noticed about inflection points in this market

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May 16, 2009 – Comments (4)

I've noticed something that might, maybe, possibly have been acting as a leading indicator of inflection points in the market in the last 6 months.

When the market reacts to news in the wrong direction, it seems to forcast a change in direction.  Examples:

-in late December / early January (my very first weeks as an investor) a string of negative news came out but the market rallied in its face.  A headline on yahoo finance said "investors shrugged off negative news today, a trend that has increased in recent weeks" or something like that. 

Shortly thereafter Alcoa kicked off earnings season with bad news and sent the market into a 2 month downward spiral.  The market was going up on worsening news, and this led to, shortly thereafter, a violent turnaround.

 

-In late February and early March a variety of news that wasn't "end of the world" stuff cmae out, but the market crashed basically every day anyway.  Reports, I think one was a better than expected retail number, came out and the market just tanked every day anyway.

Shortly thereafter an impressive rally began.

 

-In early may some news that I took as negative came out... swine flu.  the stress tests reflected not-severe unemployment, several companies announced dilutions / share issuance, HIG lost its fanny and announced a dilution and promptly went up 75% in a few days, GNW lost its fanny and promptly went up 150% in a few days.  ACAS rocketed almost 100% on basically no news.

Shortly thereafter we had the worst week for stocks in 2 months, with more to come?

 

It might be that we could all benefit a little bit from paying attention to times when the market reacts in the wrong direction to news. 

I'm not necessarily hoping for a rally in coming days, I maintain that the market over the medium and long term would benefit from a short term pullback, for what its worth the end of this week saw the market dumping on what amounted to good news:

consumer sentiment is up again, and substantially again

industrial output again beat expectations and rose

good luck to everybody who's long

4 Comments – Post Your Own

#1) On May 16, 2009 at 1:49 AM, motleyanimal (83.60) wrote:

I've been with you on the ride up from the March lows, but at this point I think it's time to change horses. There just isn't any compelling or driving force for this economy to improve yet, and I fear that panic selling is just one bad news story away.

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#2) On May 16, 2009 at 2:07 AM, checklist34 (99.71) wrote:

Hey Motley, I agree, the market is going to be sour for a while.  Or it might be anyway, I do not have a great track record for market timing.

I honestly think it would be better in the medium to long term if the market turns sour now.  Let mor epeople in really cheap instead of just cheap, and build a better base of investors -vs- momentum traders.

This week ended with a selloff on basically decent news.

If even for a month I could time the market, I'd add 50% returns to my stuff, lol

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#3) On May 16, 2009 at 2:22 AM, djkumquat (48.95) wrote:

i've been baffled by the market's reaction to the news as anyone. so i don't know if the worst is yet to come, if there will be a pullback to 7500, the sky's the limit, or who knows? i may miss out on some serious gains, but holding tight now. i'm happy with the positions taken during earlier lows, and i'll be ready to go shopping if that panic selling starts again. either way, looking forward to new highs or low buys. keeping my eye out for dips in NGA, TC, and BABY. Safer positions on serious dips in INTC, WMT, MMM, SI and COLM. thought for sure that NTE would have treated me better by now, but i'm taking a beating. still looks like a winner to me, but wondering what others think. am i missing a serious red flag here, or do i need to be more patient?

i've been on CAPS for about six months now, and really starting to enjoy the posts, comments, research, and foolishness. thanks everyone for the insights and humor!

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#4) On May 16, 2009 at 2:35 AM, djkumquat (48.95) wrote:

add SWIR to that list of dip buys, too.

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