Profiles Of Gloom

When looking the current patterns and the make-up of the market participants of this volatile spinning market, various trader profiles emerge from the past. I am not talking about the trader folks on Wall Street coming out of Ivy League schools who transact and call it trading. I'm talking about the real traders with skills honed in trading pits. Tough, big mouths who love to be miserable. Who always complain about being abused by the market as if they never made a dime. The big pit traders with hands in or out willing to step into a big trade, as long as it is winked into them quickly in busy markets and few see it. Then complain that every one else in the pit is a scumbag for not making a market for them when they needed to pick someone off. The constant bulls who have no particular trading skills and are only a little more stupid than the forever bearish who at least has some self respect. The moderate size trader, neither bull nor bear, who likes to dress himself rather than be set up by a filling brokers. The small trader who thinks everyone is an idiot for trading but makes more money than anyone else.

Trading is tough. The black box strategies speed up the game and change the profile of the market a bit. It is now filled with the ' modified bull/bear high frequency get some transactional kickback oh yes sometimes we cross orders but the exchange does not care' traders. And when groups of high frequency traders get together with everyone else, the market spins like a greased beach ball being passed along by throngs of market concert fans. Algorithmic trading is not a negative as some believe. Increasing volatility usually expands opportunities if it has corresponding increasing volume, which is certainly the case today.

Analyzing the markets has become great theater. Lately, the continuing drama of gloom is being portrayed by pundits such as CNBC's Ron Insana, who may come to be known as ' the great extrapolator' for his visionary work in connecting all stocks in a straight line down. Listening to Insana talk, one would think there is some incomprehensible misery lying ahead incapable of being repaired without some historical downside cleansing. What is clear is that Ron probably learned everything he knows about trading from reading a teleprompter. Trying to catch it all in some dire broad macro analysis is easy but lazy. Pointing a big arrow down is entertaining for some but ultimately valueless. Insana and others credibility are now invested in disaster. Tough trade.

Prone To Hyperbole

These are tough volatile markets and for all traders, it is full of opportunities which change on a daily basis. When you step back and look at the market in a broader perspective, the ability to see how the market overplays moves is better appreciated. Here is a chart of the spot SP500 emini futures against a proprietary model which calculates fair value by various performance criteria. Similar to a previous posted chart but a bit less harsh on just how much the SP500 is undervalued.

Plenty Of Action

Plenty going on yesterday. Indexes along with DJIA played with and then committed to a late rally. Previous day' action hinting Freddie and Fannie might have to raise additional capital seemed to fade along with continued pressure on crude prices all helped to clear some room for a rally. Though price action was constructive, there is enough volatility to keep all traders somewhat uneasy.

Chopping Around

Volatile trade already today as Bernanke talking about extending help to investment banks if needed. Trade trying to establish the base of the summer range with willing sellers all about.
Market will try to stage a rally over yesterday's highs but only a close above them will build any footing.

Pointing South

The worst of all worlds for markets is when stocks and commodities get rolling down together. Any look of a deflationary charge is enough to make buyers back-off. It just may be the pumped up volatility of all markets but just in case there is a general unease in today's trade. Grains, crude, and gold are getting whacked along with Freddie Mac and Fannie May bombing with about 20% declines each.

Fear and Loathing

Market trying to rally and is overdue for some relief. Just the current fear of buying has become a impediment to any advances. Clearly the break has been overdone but any negative news from banks and brokerage will keep market nervous.

Under Value ?

Could the market have it all wrong? These models are based on a criteria for price buy/sell performance of the underlying trend. In other words, the market's trend strength is measured by the execution of price value areas established by the daily price construct. The underlying market usually does not stray to far from value, but these are extraordinary times. The chart above contains the NQ100 G model for additional
comparison.

Deep Won't Sell

Weekly of the DJI. For the first time,
brokerage houses are truly recommending selling or even shorting stock. Hedge types are
whacking too. Here the chart says
50% retracement to 1985 lows is about 7800. Tough job when most
drivers are already short.

Rally Off Lows

Markets looking to extend yesterday's turn around from the lows as the official bear market so far lasted less than four hours. Traders do not care about official labels as to a bull or bear market, most have trouble reading. The bears have had decent break inside a long term bull market and should be thankful since in general it has been a tough couple years for them.

Pressure Early

Markets under pressure this AM as the third quarter begins. Middle East potential events as well as extremely bearish forecasts for the balance of the year. Being nimble around panic is difficult but the trader will find opportunity about the makings of a bear bubble as they did around the bull bubble.