Monday, March 13, 2006

Tug-Of-War Continues

The epic battle between the bears and the bulls rages on!

Look at the daily chart below of the Russell 2000 index (equivalent ETF is symbol IWM; index symbol is $RUT). Actually, $RUT is a pretty good symbol for this, since that's what the market seems stuck any case, take note of the resistance line at the top, and the numerous times the prices have bounced away from resistance. Also take note of the most recent price action (boxed in green) where the prices seem to violate the resistance, implying a push above and beyond these levels.

This is where the battle is being waged, because the bulls are trying to push prices clearly above resistance whereas the bears are trying to push it below. What's fascinating to me is that, even on a much finer granularity of time (minutes versus days) you can see this tug-of-war being played out. Note well the trendline, still shown here, and how prices seem to get shoved above and below it in spurts. Most interesting to me today is how prices were once again pushed beneath the resistance line after an early, quick run-up to try to break through.

What this has all boiled down to, on a daily basis, is another exquisite shooting star candlestick formation. I remain frustrated that the market doesn't move downward in earnest, but instead is in this vexing state of equilibrium. Everyone - bulls and bears alike - is looking for a trend. The endless waiting will make the eventual break (in either direction) that much more dramatic.


PB said...

The market is made up of thousand, if not millions of pieces. So here is another one. The low volatility the market is exhibiting lately is at the same levels as right before the LTCM blow-up in 1998. Oh, and now the US has a war to pay for, which by the way is now costing more than Vietnam. And the cherry on the cake is the lowest savings rate (which is actually negative) since the depression. Draw your own conclusions!

dsantos said...

PB, that means we are in an economic expansion, right?


It is really scary when you think about the sword of Damocles hanging over our heads.

Mike Stone said...


I'm with you. But I'm sick of hearing the bear case & I AM a bear. There are too many hacks on the bear
side of the argument that are JUST ALWAYS wrong. Who's to say it can't be pushed off for a few more years?

This market still has some upside potential. The short interest on the Naz was off the hook. I went long
some QQQQ calls and they're doing nicely. I'll get out before options expirations end of the week.

It almost seems like the market won't crash just because this time around - everyone is expecting it. Or
maybe I'm insulated from all the bullish nonsense.

If they stop hiking rates and the yield curve begins to flaten I don't know that there will be any
correction at all. If Bernanke starts cutting rates when housing really flattens then we'll have
a decent market to trade in.

The 4yr presidential cycle generally has a 10% correction. Every other cycle it's 20%. So we're do
for 20%.

Big whoopity deal. After all this bear hype and build up I expect to see the Dow at 5,000 & the S&P at
500. 20% is a big yawn after all these years of doom and gloom from the bear community.

What if the real bear market doesn't begin until 2010? Look at the run-up prior to the great depression.
There was a 3yr correction followed up by a crazy 8yr run.

It doesn't always have to be a 20yr cycle for bull/bear markets.

I'm just rambling now. Maybe all the bears need to capitulate like me before the "big one".

PB said...

Dear Mike Stone et al.

Yes, the bear case is getting a little tiring when the bulls just won't give up! It seems that doesn't matter the news, good or bad, the market finds a reason to go up. This reminds me very much of early 2000 when there seemed to be no risk in stocks.

You are probably right that the market is just looking for a capitulation by the bears, so here it is, BUY every damned index you ever heard of, and then buy some more, 'cause things will be only going up from here!!