Painting The Tape: A Beginner's Primer
Friday, October 6, 2006 | Teeka TiwariRating:
Friday’s here, and I know you are looking forward to the weekend, so I’m going to keep it short and sweet for you today. Oh, my gosh! Look at this market! Whoo Hoo they are Runnin’& Gunnin’ NOT! Look, I hate to be the party pooper, but this market just plain scares the bejeesus out of me! Let me explain myself.
One of the key technical tools we use at Point & Profit is the New York Stock Exchange Bullish Percent (NYSE BP.) The NYSE BP measures the percentage of stocks on the New York Stock Exchange that are on Point & Figure (P&F) buy signals vs. sell signals.
For example, a reading of 50% would mean that 50% of all stocks on the New York Stock Exchange are on a Point & Figure Buy signal. In a rallying market, it’s a safe assumption that the NYSE BP will be rallying as well, i.e. more stocks should be moving to buy signals.
What’s truly gob smackingly interesting is that the NYSE BP has actually been down every day for the last three days while the DOW has plowed to new highs!
This is a very disturbing divergence. In fact while the DOW enjoyed one of its best September runs in recent history, only an additional 0.7% of all stocks on the NYSE actually violated their downtrends to move to an uptrend and post a buy signal. That is horrible internal action, I mean truly Frankensteinish. It’s like a house with a perfect exterior but a completely burnt out interior.
I’m not a conspiracy guy, but I’ve got to tell you that the recent timing of the marking up of stock prices along with the upcoming November elections has me scratching my head.
Of all the financial markets, the Dow Jones Industrial Index just happens to be the easiest to manipulate and also the most influential over mass investor sentiment.
Let me bring you behind the scenes for a second. The DOW is a price-weighted index. That means that a move in a $100 stock gets four times the weighting of a $25 stock. Currently only 7 of the DOW 30 stocks have posted new highs.
Now it should come as no surprise that those 7 are comprised of some of the highest priced DOW components. What’s more shocking is that more than half of the DOW components are 30% or more below their annual highs!
Over an almost seven-year period the DOW has only JUST moved to the positive!! My point is that while I am very happy to see the Fed take a pause and commodity inflation abate, we are not seeing the internal action that precedes a major stock market advance.
This rally is a month old already, and it still has yet to spread beyond the DOW in any meaningful way.
Don’t be a sucker here; the big money is clearly marking up the prices of a few select stocks to “paint the tape”.
Caution is the watchword until (if) the rally becomes more broad-based. You can always make up lost opportunity, but lost dollars are a lot harder to recoup.
Be thinking shorts here, not longs. If you must buy, then buy on down days, not up days.
Truly, now is the time to let the game come to you!
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Teeka Tiwari
Chief Investment Officer
ETF Master Trader
