Marketview: Gripped by Momentum

• Posted by DynamicHedge
• on February 4th, 2012

When the markets are dropping and volatility is high, traders are well advised to disregard garden variety technical tools.  The same goes for momentum markets, which are an odd inverse of markets in panic.  Momentum is a club-footed sprinter who occasionally stumbles on resistance (and himself) on the way to higher prices — making a fool of every top caller in the process.  $SPX 1370 is the number now, and the momo crowd has it in their sights.  The reason?  There are buy stops there that must be taken out.

If and when we get to 1370 there will be a massive rotation of holders.  We’ve seen how this movie plays out a few times before.  My guess is that shorting at 1370 will look really good until it doesn’t.  Similar to how shorting 1220 looked good in 2010 until it didn’t.  See chart here.

On the negative side we have the Facebook IPO event which does count for something of a contra indicator.  The fact that so many garbage stocks are rallying also makes me somewhat cautious.  On the positive side, tech is leading this rally and breaking out.  Most of the indicators I’m watching look pretty clean for further upside.  Some measures of breadth are getting overheated, like the number of Dow stocks currently above the 200 day MA (26).  The general tone of the market makes me think we will see all 30 above the 200 day before we get a breather.  Trust in MAMO.

Winners: $MA, $V, $MS, $C, $BAC, $S, $QCOM, $DELL

Losers: $MRK, $BMY, $PFE, $XOM, $HAL, $DVN, $ETR, $SO

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