TRADING THE MARKETS

Tony Crescenzi of realmoney.com with a wonderful article on why he thinks yesterday's sell off was different than what occurred in August:

"There is a major difference between the cause of the anxieties apparent in the equities and credit markets this week and those that led to major erosion in markets in August. The performance of the markets this time looks more a function of economic circumstance than financial circumstance, which was the driving force behind the August rout.

This week's market performance was driven more by lowered expectations of future cash flows than by renewed concerns about system risks. Cash-flow expectations were driven lower by this week's bad news on housing (the homebuilders survey reached a record low and housing starts fell to a 14-year low) and from a few negative corporate earnings reports. In August, the financials' negative performance was related mostly to a sharp change in perceptions about systemic risks.

Modifications to cash-flow projections, so long as they are not sharp, which is the case so far, are not likely to lead to any more than run-of-the mill changes in stock and bond prices. This week's action fits this mold, and should not be mistaken as a sign of deeper distress.

If concerns were deep, and if there were worries about the financial system, commercial paper rates and LIBOR would be spiking higher, as was the case in August, rather than falling to new lows as they have this week.

Some concern has developed this week regarding systemic risks, but these concerns are not nearly as high as they were in August. What has changed is the projection about future cash flows, with earnings expectations and expectations for interest coverage ratios driven down. These are run-of-the-mill concerns, not like the concerns expressed in August. "

I agree 100% with Tony and am looking to buy this week. Markets are oversold, VIX/VXO stretched to the upside, RSI (2) way down near the 1 level and the TRIN now up 5 days in a row.

Trading Markets had this article about the TRIN in 2006 and it fits right in with a buy lower sell higher philosophy. Trading Markets rules the TRIN trade:

Buy if SPX is above the 200 day SMA;

TRIN closes above 1.0 three consecutive days;

Exit the trade when the SPX trades above the 5 day SMA;

Looks like their are some other bloggers who are bullish for a trade here, Bill and the good Doctor who expects the trading range to hold.

As I have mentioned, I like to buy when the signals are aligned and now appears to be that time and if we sell off on Monday morning I will be dipping.