FusionIQ Morning Market Comments (12-05-08)
Kevin Lane is one of the founding partners of Fusion Analytics, and is the firm’s director of Quantitative Research. Prior to joining Fusion Analytics, Mr. Lane enjoyed success as the Chief Market Strategist for several sell side institutional brokerage firms, where he made unique and savvy market predictions. In those capacities he oversaw the firms’ research departments and was the main architect for developing their proprietary stock selection models and trading algorithms. Mr. Lane produced a broad range of widely followed institutional research publications ranging from industry specific notes to quantitative/fundamental reports on individual stocks. His buy side clientele consisted of many of the nations top money managers and hedge fund managers. Mr. Lane is a member of the Market Technicians Association and earned a B.S. in Business Management from the State University of New York at Plattsburgh.
Yesterday remained another stellar day according to the tape (not the sarcasm !) as the NYSE scored 2.8 decliners for every one advancer and declining volume bested advancing volume by a rate of 3.59 to 1. The NASDAQ fared no better with 2.37 decliners for every advancer while down volume bested up volume by an alarming 6:17 to 1 ratio. This clearly paints a picture that distribution is still the dominant theme and there is still supply in the market place until we can see these ratios reverse course consistently with advancers trouncing decliners and up volume trouncing down volume we are likely to see another retest and possibly a new low. Like we said the other day anecdotal stories of investors burying their heads in the sand by hiding statements in their draws and refusing to look at the carnage is not the type of sentiment one sees at ultimate lows. Real lows are formed even after substantial declines investors are still calling for the end of the world (not looking for the silver lining).
We are starting to believe this drop is still the concern stage but not yet the capitulation. During major corrections investors go through three phases in this order; Denial, Concern and Capitulation. The Denial phase is the first leg down and investors brush it off because the previous bull run had been so good to them and also saw corrective phases along the way. The Concern phase is when the correction goes much deeper than the investor originally thought and has now cause grave concern. However that grave concern still searches for hope of a comeback. Intermittent rallies along the way sometimes alleviate the concern momentarily. However after the many minor rallies continue to fade (even after a very deep correction from the peak) one last sell-off drains the last hope out of anyone clinging to the log of hope. It is this last sell down that brings in the capitulatory action and that my friends sets the low.
While I am an optimist by nature I do need to read the tea leaves and anecdotal sentiment evidence objectively and at this point complacency still seems to be the general theme.
THE MARKET WILL TELL YOU WHEN IT HAS BOTTOMED IF YOU LISTEN: THERE WILL BE FEAR IN EVERYONE’S VOICES AND IRRATIONAL BEHAVIOR IN THEIR ACTIONS AND THROUGH ALL THE BAD HEADLINE NEWS THE MARKET WILL BREAK BUT WILL SNAP BACK WITH A VENGEANCE. THIS HAS NOT YET HAPPENED. THE RALLIES FAIL BECAUSE THEY ARE MET WITH TEPID BUYING AND SHORT COVERING, HOWEVER AT SOME POINT THE REAL BUYERS (SUSTAINABLE BUYING) WILL STEP IN AND IT WILL BE OBVIOUS.