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.
One day the market shakes off very bad news and scores a very nice reversal. Yesterday on company specific related news the market sold off. So the question to be pondered is as such: Did this sell-off have more to do with the market running up nearly 1,000 points in the last two trading days or is the negative news still a shock to traders? For the record our bet would go with the former.
While we did say we were impressed with the market shaking off the worst number of jobs lost in 34 years on Friday (and having subsequent follow through on Monday), we did say not to take a lot of credence in a one day event. So that said, we are waiting to see in the next day or two whether Friday and Monday were the aberration or was it Tuesday.
Trading volume in yesterday’s down session was not that heavy (relative to recent trends), which somewhat tempers the negative skew of the sessions’ advancers to decliners ratio as well as the up to down volume ratios. The NASDAQ internals were as follows; 2.32 to 1 decliners to advancers with a 1.95 to 1 down to up volume ratio. Over on the NYSE it was 2.77 to 1 decliners to advancers and 2.15 to 1 down volume over up volume.
Investor Sentiment and Asset Allocation Model still suggest investors are very negative and under allocated to stocks (relative to historical norms). However, the anecdotal sentiment of small investor being fearful of missing any rally that may develop is contrary to what the sentiment surveys suggest.
Mathematical theories such as price elasticity and mean reversion suggest even if we went lower ultimately we have been stretched so far in one direction (down) that we should get a decent counter trend rally. Interestingly enough we do note that many marquee stocks that have been on FusionIQ Sell Short Signals are now moving to neutral reflective of a positive shift in momentum in the near term.