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Tuesday, September 15, 2009

DOW Junk


If 1060 breaks, it sure seems there is really no resistance to the breakway gap at 1097 other than the gap exerting pressure itself. I suppose, with above 90% Daily sentiment, just about everyone is expecting that gap to close.

But the problem with that thinking is the 1060 resistance and a one-sided bet. The market needs a solid close above it. The 1060 resistance is not easy to spot. It is the jumping point for the entire second half of the bull run from 2003-2007. It won't show up on a 2 year chart.

In addition, when one is locked into a common "certainty" (gap will be closed) he or she has already likely placed himself in position for that bet. Just think of the head and shoulders play in June/ early July. It never panned out did it? No! And I said it likely wouldn't either at the time.

And now that the certainty that the "gap" will be closed is also perhaps dangerous thinking.

The DOW chart shows just how little it has actually advanced in 28 trading days time. 276 points. That's about 10 DOW points a day. However the psychological effects have been a wipeout for bears in general. In those 28 trading days, there were really only 2 "bad" down days and if you weren't in position for those, you likely missed them somewhat. So the bears have been starved of oxygen.

I just read somewhere that short interest is the lowest since early 2007. Makes sense. I postulate that the initial move down will be swift and very harsh for bulls for whenever it comes.
There will be no squeezes to cushion the fall. The "dip buyers" will be done. Why?

I also just read (Elliott Wave Theorist) that institutional cash holdings are nearing a low comparable to the peak of 2007. So who is left to buy the dips? Retail? Good luck betting on Mom and Pop who are riddled in debt by the way.

Catalyst? I don't worry about those. When the market finally reverses, the media will make something up. There are about 1000 horrible things out there happening. I'm sure anything will do when the time comes.

"Don't fight the FED". LOL! If I hear that again I will puke! The FED controls nothing except their own hubris which is unchecked right now. All the FED little chiefs are running around the country all of sudden talking it all up and living a bit too much in the spotlight.

They cannot control prices. They cannot control interest rates. They cannot spur lending. They cannot control mass social mood.

What do they control? The money supply is about it. Yet most of what they are printing is piled high in bank vaults guarding against the piles of paper rot awash in bank balance sheets.

(You want a catalyst? If C cannot get above $5, it will be a big big problem. And they want to sell more stock LOL. For now, the "C" story is on the backburner)

But tremendous external forces are weighing on each FED member. Fight the Fed? The FED is fighting itself! Some members think deflation is coming others worry about inflation...do they sound like they have a clue? Sounds like a good solid plan for the rest of that institutional cash to go "all in baby". The Fed never let us down! We'll get another short squeeze going. Oh yeah? Who is left to squeeze?

The psychology is polar opposite now as it was from under 700 SPX.

Oh yeah that junk gapped up today and remains uncovered. Nice. Chase it hehe.

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