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Technical Take
Amen! The
market wakes up and trades so that traders actually make money. The
second quarter brought tops, rallies, failed rallies and reverse
rallies. Market volatility allows traders to trade support and
resistance, and bring technical order to a market rife with uncertainty.
In the second quarter, significant resistance emerged at 13650. After
the market broke through 13650, it went to an all-time of 14000, and
quickly sold off to 13200. In the process, the market etched a nice
head-and- shoulders pattern starting at 13650, going to 14000, dropping
to 13200 and then back to 13650.
Significant
consolidation and support now exists in the 13200 to 13650 range, and a
market break through 13200 may soon test the 200-day average around
12800 as its next support level. Below 12800, Dow 12000 provided support
in the February pullback, resistance in October and support in November.
If the market falls through 12800, a positive market correction may take
another year because the market’s buying and bullish bias for the past
year heavily discounts the constructive role of retracements. At least,
the traders will have a good year, and the technical analysts will have
a nice 10 percent correction, the first since March 2003.
One
difference in this market correction is the magnitude of black box,
program or quantitative trading that try to navigate the market on
autopilot and mathematical models. The Dow’s almost 400-point loss on
August 9th resulted from Goldman Sachs’ announcement of an
impending bankruptcy in their $1.2 billion quantitative fund. Earlier
the European central bank propped up a BNP fund, and Bear Stearns
liquidated two billion dollar plus funds in mid-July. Sometimes,
investors actually want their money, and these hedge or "quant" funds no
longer can mark to model to show the fund’s value and must actually mark
to market and see the actual value of the fund’s securities. Often,
there is no bid on the underlying security, and it is worthless because
no one wants to buy the tranch, CDO, CDO squared, CMO or other Wall
Street concocted product. |
