David Moenning's Daily State of the Markets: 7/8
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Does the Tape Tell All?
Market technicians contend that “the tape tells all” and thus, there is little reason to keep up with the news or try to identify the causes behind market movements. The idea is that simply following the action of the indices or whatever it is you happen to be trading will provide you with all the information you need.
While we will admit that staying up with the tape action is very helpful in the big picture and is absolutely critical when trying to time entry and exit points, long time readers know we believe strongly that it is important to understand the “why” behind market moves. In our humble opinion, the market rarely makes a big move in either direction without a pretty solid reason behind it.
However, there are occasions when the “why” becomes the tape action itself. In fact, yesterday’s dive was really all about the tape and something called a head-and-shoulders top formation. While the popular press spent an awful lot of time talking about how traders have become disenchanted with the green shoots and convinced that the earnings season will be an abject disaster, the real story was the breakdown on the Dow chart.
Lots of people, especially old school stock pickers, view the concept of chart watching or technical analysis as some sort of voodoo and/or reading of tea leaves. Thus, they argue it is more important to stick to the fundamentals of a stock than to get caught up in the wiggles and giggles on the charts.
But, it is also important to understand that the majority of traders in the game these days have multiple screens in front of them packed full of sophisticated charts on everything from oil to General Mills (GIS) to the bonds of places like Russia and Brazil and it is a safe bet that every single one of these fast money types has at least read “Technical Analysis for Dummies.” Thus, if you want to understand what makes the trader types do what they do, you have got to understand what drives the action on the charts.
So, given the fact that the only real news of the day was the American Bankers Association report showing that credit card delinquencies continue to rise and hit a record in the first quarter, we’ll suggest that yesterday’s market had little to do with the “green shoots” and everything to do with the fact that the Dow broke down below the neckline of the head-and-shoulders top formation and that the S&P snapped its 200-day moving average.
Why does any of this technical analysis mumbo jumbo matter, you ask? In short, because a couple of the oldest saws on Wall Street are “the trend is your friend” and “don’t fight the tape.” So, in light of the facts that (a) the trend is now down on a short-term basis and (b) many traders “worship at the altar of price momentum” we wouldn’t be terribly surprised to see stocks work lower before finding a bottom. As we’ve said recently, having a theme is nice but we’ll bow to the price action if the market tells us that our view is wrong. You see, THIS is what managing risk is all about.
Turning to this morning, we don’t have any economic data to review before the bell but the Treasury’s auction of 10-year notes is likely to attract some attention at 1:00 pm eastern.
Running through the rest of the pre-game indicators, the major overseas markets are mixed by region again with Asia down and Europe fluttering around breakeven. Crude futures are moving down again with the latest quote showing oil trading lower by $1.09 to $61.84. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.44%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a rather flat open. The Dow futures are currently ahead by about 4 points; the S&P’s are about even, while the NASDAQ looks to be about 3 points above fair value at the moment.
Stocks “In Play” This Morning:
Upgrades/Downgrades/Brokerage Research:
ST Microelectronics (STM) – Upgraded at BofA/Merrill
Freeport-McMoRan (FCX) – Upgraded at Citi
Southern Copper (PCU) – Upgraded at Citi
DryShips (DRYS) – Upgraded at Credit Suisse
Amgen (AMGN) – Target increased at Deutsche Bank
Peabody Energy (BTU) – Upgraded at Goldman
Arch Coal (ACI) – Downgraded at Goldman
RF Micro Devices (RFMD) – Target increased at Oppenheimer
First Solar (FSLR) – Upgraded at ThinkEquity
Cigna (CI) – Target increased at UBS
Long positions in stocks mentioned: none
Note: All earnings reports compared to Reuter’s consensus estimates
** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopStockPortfolios.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
Market technicians contend that “the tape tells all” and thus, there is little reason to keep up with the news or try to identify the causes behind market movements. The idea is that simply following the action of the indices or whatever it is you happen to be trading will provide you with all the information you need.
While we will admit that staying up with the tape action is very helpful in the big picture and is absolutely critical when trying to time entry and exit points, long time readers know we believe strongly that it is important to understand the “why” behind market moves. In our humble opinion, the market rarely makes a big move in either direction without a pretty solid reason behind it.
However, there are occasions when the “why” becomes the tape action itself. In fact, yesterday’s dive was really all about the tape and something called a head-and-shoulders top formation. While the popular press spent an awful lot of time talking about how traders have become disenchanted with the green shoots and convinced that the earnings season will be an abject disaster, the real story was the breakdown on the Dow chart.
Lots of people, especially old school stock pickers, view the concept of chart watching or technical analysis as some sort of voodoo and/or reading of tea leaves. Thus, they argue it is more important to stick to the fundamentals of a stock than to get caught up in the wiggles and giggles on the charts.
But, it is also important to understand that the majority of traders in the game these days have multiple screens in front of them packed full of sophisticated charts on everything from oil to General Mills (GIS) to the bonds of places like Russia and Brazil and it is a safe bet that every single one of these fast money types has at least read “Technical Analysis for Dummies.” Thus, if you want to understand what makes the trader types do what they do, you have got to understand what drives the action on the charts.
So, given the fact that the only real news of the day was the American Bankers Association report showing that credit card delinquencies continue to rise and hit a record in the first quarter, we’ll suggest that yesterday’s market had little to do with the “green shoots” and everything to do with the fact that the Dow broke down below the neckline of the head-and-shoulders top formation and that the S&P snapped its 200-day moving average.
Why does any of this technical analysis mumbo jumbo matter, you ask? In short, because a couple of the oldest saws on Wall Street are “the trend is your friend” and “don’t fight the tape.” So, in light of the facts that (a) the trend is now down on a short-term basis and (b) many traders “worship at the altar of price momentum” we wouldn’t be terribly surprised to see stocks work lower before finding a bottom. As we’ve said recently, having a theme is nice but we’ll bow to the price action if the market tells us that our view is wrong. You see, THIS is what managing risk is all about.
Turning to this morning, we don’t have any economic data to review before the bell but the Treasury’s auction of 10-year notes is likely to attract some attention at 1:00 pm eastern.
Running through the rest of the pre-game indicators, the major overseas markets are mixed by region again with Asia down and Europe fluttering around breakeven. Crude futures are moving down again with the latest quote showing oil trading lower by $1.09 to $61.84. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.44%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a rather flat open. The Dow futures are currently ahead by about 4 points; the S&P’s are about even, while the NASDAQ looks to be about 3 points above fair value at the moment.
Stocks “In Play” This Morning:
Upgrades/Downgrades/Brokerage Research:
ST Microelectronics (STM) – Upgraded at BofA/Merrill
Freeport-McMoRan (FCX) – Upgraded at Citi
Southern Copper (PCU) – Upgraded at Citi
DryShips (DRYS) – Upgraded at Credit Suisse
Amgen (AMGN) – Target increased at Deutsche Bank
Peabody Energy (BTU) – Upgraded at Goldman
Arch Coal (ACI) – Downgraded at Goldman
RF Micro Devices (RFMD) – Target increased at Oppenheimer
First Solar (FSLR) – Upgraded at ThinkEquity
Cigna (CI) – Target increased at UBS
Long positions in stocks mentioned: none
Note: All earnings reports compared to Reuter’s consensus estimates
** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopStockPortfolios.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
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