RALLY TALK EVERYWHERE

Helen Meisler on realmoney.com has an interesting article this morning about all the oversold/rally chatter. I have a bit of a different take and here goes:

"Did you ever see so much discussion over whether that was capitulation or not? It might have ranked right up there with all the bubble talk from last week!

And don't forget how many times you heard how well tech acted yesterday.
Oh sure, Google (GOOG:Nasdaq) was up on the day. So was Broadcom (BRCM:Nasdaq) . And don't forget Apple (AAPL:Nasdaq) either!

Yet I keep hearing how bearish folks are on tech.

Where? Where are they bearish on tech?

If they were so bearish on tech, would they have been buying these stocks Wednesday? Nope, they would have been selling them.

We would have seen whooshes as we did with Home Depot (HD:NYSE) . But I didn't see anyone calling a bottom in Home Depot yesterday, did you?
Home Depot has fallen 10% in about five days, yet I don't see anyone screaming about how oversold this stock is like they are about tech. Do you see that volume surge in HD?

Now, look at all those tech stocks and tell me if you see a volume surge like that.
Oh wait, we see it in the Nasdaq 100 Trust (QQQQ:Nasdaq) . Aha, so that's why everyone is all excited about the capitulation.

Helene, now you have me confused, the QQQQ tech proxy has been heading lower since January when it made it high for the year. AAPL and GOOG have been spiraling down for months, long before the DJIA started heading lower last week. MSFT/INTC/BRCM/MRVL? Why do you say folks aren't bearish on tech. Check the SMH, that is not a pretty chart either. If folks are not bearish on tech, then they have lost a lot of money being bullish. Check the WINTEL quote, when was the last time those two were at that combined market value.



"As far as capitulation goes, we can say the VIX has surely gotten jumpy in that it has reached levels not seen since October. But to me, capitulation has always come when we break important levels, not when we hold on to them.

In this case, we have Nasdaq clinging to that 2200 level that everyone keeps citing and the DJIA clinging to 11,200. (And I cannot believe as I write this that folks are talking about capitulation with the DJIA carrying an 11 handle!) I also heard a debate over whether the S&P 500 would stop at 1240 or 1250.

When there is real capitulation and real fear in the market, talk of another 20 or 30 points down on the S&P when we've already fallen 60 seems odd.

Where are all those folks who start talking crashes?
Where are all those folks who start talking about the Dow under 10,000? I can't find them. Instead, I see a host of folks looking for a rally.

Oh wait, there is a saving grace: They all want to sell the rally. Gee, isn't that where we found ourselves Wednesday morning? Lot of good it did us after that CPI.

So we've determined it was not capitulation, and there surely was no fear. There was volatility, however, and that caused the spike in the VIX -- good news for the bulls. Also good news for the bulls is that the put/call ratio's total reading surged to a reading so high (152%) that I couldn't find another reading so high in my data.

The oscillator will not be oversold until next week (sometime between Monday and Wednesday). The 30-day moving average of the A/D line will be oversold tomorrow.

The number of stocks making new lows contracted on Nasdaq but expanded on the NYSE. I suppose the bulls will glom onto the Nasdaq and the bears will glom onto the NYSE.

So we're back to the same scenario we had yesterday morning: Rallies are not only possible but probable. After all, I am sure there is some precedent for the Nasdaq being down seven or eight days in a row (or is it nine now?) that someone will cite. I have been discussing the possibility of a rally next week, not this week, so I'm going to stick with that scenario.

If we get a rally this week, it will feel a bit premature."

Helene, I think the problem here is that the data is so readily available everyone knows when the VIX is overbought and when the PUT/CALL ratio is too high. Everyone has a guru on the web or a special site that tells them "yup, market is now officially oversold, time to buy." We have all kinds of data mining programs that tell everyone the probability of what will happen tomorrow based on what happened today, yesterday, last week, last month and last year. So the question now is how do we adapt, because I for one am nervous that just about everyone knows everything that you and I know.