Market in Correction

[Mike]

Some may be wondering about the whipsaw market direction calls from IBD this year. We just went through the shortest confirmed rally in my trading history of one day in length. It appears this was a "Paint the Tape" market move at month-quarter-semester end. CANSLIM methods are designed for intermediate to long term opportunities and of course one-day rallies can't really be dealt with. No method works most of the time. In my own opinion CANSLIM investing has been difficult since the 2009 bottom. Since the bottom, there have been three tradable rallies with follow-through days on 3/12/2009, 3/1/2010 and 9/1/2010. These rallies lasted 33 weeks, 9 weeks and 26 weeks. It is important to recognize that there are times you should be in cash, this is one of them. If one is adept at taking short positions there are other things that might be considered however in a Fed induced liquidity situation short postions have not been easy to manage.

Some may remember that I collect a lot of statistics surrounding market trend changes and attempt to discover those follow-through days (FTD) that using historical data imply whether there will be a successful ensuing rally. The three rallies mentioned above all had the full gamut of success factors working at the day of the FTD. Each of the other FTDs since the 2009 bottom have showed significant problems that in the past have led to high rally failure rates. As an example I have learned that if the NASDAQ 20-day ATR has established an uptrend at the time of a FTD that the ensuing rally usually fails. ATR has been in an uptrend since 12/31/2010. A hallmark of a major market top is a long-term rising ATR as the market advances toward an eventual top.

[Pascal]

Some may be wondering about the whipsaw market direction calls from IBD this year. We just went through the shortest confirmed rally in my trading history of one day in length. It appears this was a "Paint the Tape" market move at month-quarter-semester end. CANSLIM methods are designed for intermediate to long term opportunities and of course one-day rallies can't really be dealt with. No method works most of the time. In my own opinion CANSLIM investing has been difficult since the 2009 bottom. Since the bottom, there have been three tradable rallies with follow-through days on 3/12/2009, 3/1/2010 and 9/1/2010. These rallies lasted 33 weeks, 9 weeks and 26 weeks. It is important to recognize that there are times you should be in cash, this is one of them. If one is adept at taking short positions there are other things that might be considered however in a Fed induced liquidity situation short postions have not been easy to manage.

Some may remember that I collect a lot of statistics surrounding market trend changes and attempt to discover those follow-through days (FTD) that using historical data imply whether there will be a successful ensuing rally. The three rallies mentioned above all had the full gamut of success factors working at the day of the FTD. Each of the other FTDs since the 2009 bottom have showed significant problems that in the past have led to high rally failure rates. As an example I have learned that if the NASDAQ 20-day ATR has established an uptrend at the time of a FTD that the ensuing rally usually fails. ATR has been in an uptrend since 12/31/2010. A hallmark of a major market top is a long-term rising ATR as the market advances toward an eventual top.

Mike, this note about the 20D ATR is interesting. I also have noted that the 200D ATR is important in order to start short positions and hence, you might have noted that ATR measures are part of the LT robots short analysis.


Pascal

[asomani]

Thank you for the words of wisdom, Mike.

They are insightful.

I think the market is has been so choppy this year, especially recently, that it has made it hard for trend-followers, including those who follow CANSLIM. I'm sure trend-following will come back eventually, perhaps very soon - but mean reversion has been the name of the game so far this year.

[Kenneth K]

Everytime Goldman either has gotten into some sort of legal problem (May 2010, June 2011) or its grand scheme to extort some policy concession (bailout schemes) from Congress runs into trouble, the market has taken a dive. Seeing that Goldman controls 80 % of the trading, the correlation is rather intriquing.

http://www.bloomberg.com/news/2011-06-02/goldman-said-to-get-subpoena-from-manhattan-prosecutor-over-senate-report.html