| Gar's Market Blog
Outlook for Wednesday
( 24 February 2010 )
Do
Robots Only Buy?
I
briefly mentioned in a recent
outlook that there is an underlying,
relentless bullishness that
keeps trying to move the market
higher---by default. What never
occurred to me until today was
that this "bullishness"
might not even be human. It
could very well be a trading
robot.
It's
not far fetched. I have heard
about these things, which are
software tools that place trading
on autopilot. Some are for groups
of traders, but more commonly,
hedge funds or even mutual funds
are the most likely users of
'bots.' It is not inconceivable
that a large fund places their
monster trading account in some
kind of automatic mode. The
evidence? A stready, seemingly
relentless stream of buying
throughout the trading session,
and under every and all conditions,
day after day.
But
there is additional evidence
I observed during today's downslide.
Look carefully at the 5-minute
intraday chart that I selected
randomly with StockVision's
new intraday charts:
Carefully
note the volume spikes that
appear in random location across
this chart (the circled spots).
Now carefully note that most
of the volume spikes are to
the sell side. Otherwise, the
volume remains steady, and the
stock ramps higher.
If
the large traders are using
robots, are the robots creating
these occassional surges, or
are the robots trading the smaller,
steady volume? I submit that
it is the steady volume created
by "bots," with the
larger bursts coming from humans---people
who make real decisions.
In
a word, it appears that robots
are doing the buying, and humans
are doing the selling. If this
is true, it is no wonder the
current market is so difficult
to figure out!
Outlook
for Wednesday
In
our last outlook, Monday was
forecast to be lackluster and
sideways, which turned out to
be correct. Tuesday, however,
witnessed a catalyst for some
long overdue downside (Consumer
Confidence report). If we are
right about the human vs. robot
theory, it could very well be
that the bad report influenced
humans to finally make real
decisions and start selling.
In truth, there is no rationality
to the market rallying day after
day after day, so perhaps reality
set in today, or at least spooked
a few (real) people.
Aside
from robot/human theories, there
are technical reasons to assume
more downside. Practically every
chart I looked at showed lofty,
recent peaks, with strong red
"candles" from today's
session. In a word, there appears
to be a lot of downside remaining.
So, be extra cautious on longer-term
holds, or you could be facing
a fast and wicked beating. Play
short-term (day trading) bouncers
if you want to go long. Avoid
buying into early strength,
as early strength is bound to
attract (human) selling.
Sector
Watch
As usual,
the US dollar will dictate most
of the sector rotation. Should
the dollar start tanking, Commodities
could snap into an explosive
rally, and Gold will bounce
sharply. Should the dollar hold
its own or grow stronger, look
for Energy and Comodities to
get hammered, with Technology
most likely moving higher on
an oversold bounce. Financials
have much overdue downside pending,
so play those at your own risk.
Tomorrow's
wild card will be Ben Bernake
giving testimony to congress.
His every word could create
snapping gyrations throughout
the day.
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