Monday, February 16, 2009

Technicals, Fundamentals and Sentiment

Macroeconomic evaluation of the market is nothing short of voodoo.  Traders are constantly attempting to find objective indicators to tell them definitively to be long or short.  Fear and greed play hopscotch on our hippocampus while we feverishly punch the buy/sell buttons on Tradestation.  Let's look at a few indicators and try to come to some conclusion.

Technical analysis.  Here we have Upsidetrader taking out his big purple crayons to look at Elliot wave, Fibonacci and horizontal resistance all at once.... and voila!  The DJIA will hit 6363 very soon.  Love it!!  You can say what you want about Upside, but he is always sure, and I respect him for that.... and his day-trades go well an inordinate number of times.

Fundamental Analysis.  The Big Kahuna, John Maudlin*, implies that nearly every factory in the world has shut down as inventories have been built and no buyers can be found.  Fugly by definition.  It's called a deflationary depression, my friends.  

*This pdf is really worth reading in its entirety.

Sentiment.  With all this bad news, it might come as a surprise that mutual fund managers are still nearly fully invested.  Marc Faber  implies that money mangers have not not fully capitulated yet, which bodes ill for the stock market in the coming weeks.  

Take all this voodoo with a grain of salt.  The stock market will be a leading indicator out of this morass but who knows how long that will be?  Play the swing trades both ways: some long and some short.  Daytrade if you have the guts.... and keep your retirement in cash, gold and Treasurys/TIPS.

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