Monday, November 09, 2009

DIA & SPY End of Day Look

I generally stay out of discussions regarding the PPT and other shadow money that is moving around like an invisible hand to pick the pockets of small fry investors/traders. The existence or not of such forces, any of our jobs is to swim in the waters of our choosing.

Nevertheless, I do marvel that, for those who are short the market, their failure to realize that their pain is often the rocket propellant for the moves up. I know, I've been that pain from time to time, and I've a little pain going on now--but not teeth gnashing, weeping and wailing pain. A dull ache!

You know that one of my favorite little market books is G. C. Selden's Psychology of the Stock market. It is available through Google's books on line. You can find it available for download here. It is one of my favorite books. And though with a copyright of 1914, the commentary is fresh as ever.

The main point of their argument is
that the state of mind of a man short
of the market is radically different from
the state of mind of one who is long.
Their whole study, in such a conversation,
is the mental attitude of those interested
in the market. If a majority
of the volatile class of in-and-out traders
are long, many of them will hasten
to sell on any sign of weakness and
a decline will result. If the majority
are short, they will buy on any development
of strength and an advance may
be expected.

G. C. Selden, Psychology of the Stock Market, p. 11

I pulled charts on the DIA and SPY. Simple charts as I wanted to see some of the dynamics given today's thrust on low volume:

The oscillator (I use the Ulitmate Oscillator), is divergent from the price action in both indices. I look for these divergences, and I treat them as a heads up.

Positions: long SPY DEC puts and DIA NOV puts.


Glenn_in_MA said...

If UTL peaks out slightly over 50 for this thrust up then that would reveal a SIGNIFCANT negative divergence. Also, those are some glaring gaps just shouting out to be filled. The low volume speaks volumes (ha, ha) in my mind. I see no reason to change my view that the markets are topping and I see you're counting on that too...or is that just part of your hedging strategy?

Leisa said...

Glenn, my adjective for my strategy may be less charitable than the word 'hedging'!

I may also be looking at the oscillator while there is incompletion (meaning move can go furhter) as Biffermas noted on Slope of Hope.