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Wait & See, S&P . . . (500 that is) November 5, 2011

Posted by Tom in Thoughts.
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Sorry for the sparse and late posts, but the last 2 weeks have been unusually busy for me.  Many items that had to be completed with short notice, but were important.  Next week I return to Chicago for a series of seminars, so next weekend I may be tardy as well.   ‘Nuff said.  🙂

The gyrations driven by the European Debt issues continue, as evidence in the chart below.  Just to point out what may not be obvious in the news:  the issue facing the EU, and that has the markets skittish, is not Greece.  It’s what happens after Greece.  True, the ECB (European Central Bank) has the funds to “bail out” Greece in any case, but the problem is Italy then Portugal, Spain, Ireland  . . . .  Make no mistake, the size of the debt issue in Italy is far larger than Greece.  And for all practical purposes, the ECB can’t bail everyone out.  That’s the problem now facing the world.  And yes, it could very well affect the US economy.  So much for economics (perhaps one day I’ll talk about how certain banks got taken up in this crisis, it’s a long story).

The tag line is “Wait & See, S&P” and that’s my opinion of this market.  In the chart below please note the recent increase in prices, but on a corresponding lower volume (the purple lines).  Who’s buying if the volume is not there?  Good question.  Let’s take a deeper look.

The chart below show the Accumulation (buying) and Distribution (selling) for stocks in the broad S&P 1500.  Green is “good” (accumulation) and red is selling (distribution).  Far more green shades than red, tho I’d like to see more dark green (heavier buying).       (BTW, click on the graphics to enlarge them)

The next chart shows the direction of this trend; the number of stocks where the Accumulation is increasing (green), constant (yellow) or decreasing (red).  While the red is more than the green, they are relatively close.

                                    Pie charts courtesy of HighGrowthStock.com; used with permission; copyright 2011.

What to make of this?  In my opinion, there is evidence of buying (stocks under accumulation), but it is selective (the number with direction being up).  This looks like “smart money” doing what Richard Wyckoff would call “quite accumulation”, while the general market participants are going to “wait & see”. 

Is this the “all clear” sign?  No.  It only indicates that some people are buying, especially when the market corrects (goes lower).  Likely it is a “bet” that the EU will find a way through their crisis and we can get back to worrying about our own.  I have been taking small, measured “probing” positions in securities that are showing greater strength than the general market.  I want to participate, but I don’t want to bet that someone, somewhere will do the right thing.  We’ve all been disappointed before, haven’t we?

                                Be careful,  prudent and selective.  Preserve primary capital.  Have a good week !

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