4/5/05 Journal

...It was another unimpressive rally for the indexes today. The bulls were handed a gift today when Mr. Greenspan spoke regarding the energy markets, and knocked XOI down nearly 1%. But the bulls couldn't do much with it.
...XOI looks like it put in a top in early March. Since then it has put in two straight lower tops, and two lower bottoms. Three of my old favorite energy related stocks that I follow daily, XTO, SU, and VLO, completed ugly chart patterns today, and look like better short candidates than longs at this point.
...Short term, XOI at the minimum needs to take out 874 to be considered bullish again, and that would still leave it well below the March top of 894.94. I still like energy in the long run. But that chart is ugly right now. I have long term positions in XTO, SU, VLO and CRT in the energy sector. I also move in and out of trading positions on them. But I'm not looking to add trading positions until they either show strength again by clearing their latest short term resistance (and that would be a swing trade only), or better yet, come back to their rising 50 day EMAs (which would be longer term position trades.)
...Yesterday's Stock of the Day, AIG, couldn't follow through on yesterday's rally, surprise, surprise. Yesterday they were upgraded by two major houses. As good as yesterday's rally might have looked, it did not match the damage done last Friday. Today the stock was up early in the day, but then tanked this afternoon to close down $.30. It still looks like a good short to me.
...Today's Stock of the Day, PFE, announced a $4 billion cost cutting program, and that they expected to return to double digit revenue growth next year. In the meantime, they cut their forecast. The Street seemed to like what they heard, driving the stock up $.97 today on 53 million shares of volume, but like AIG yesterday, I think all they did was give a better entry for shorts, for those who weren't already in.
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...Today's main numbers:
With XOI being down .96%, you'd think the market could have done better than the Dow being up .36%, the S&P .45%, the Nasdaq .41%, and the Nasdaq 100 .48%. Volume was still unenthusiastic, too, at 1.8B on the NYSE and 1.6B on the Nasdaq. Once again, volume was heavier on the NYSE than the Nasdaq, not a good sign. The NYSE had 71 new highs vs 37 new lows, and the Nasdaq 50 new highs vs 116 new lows, not the stuff of bull markets.
...The Nasdaq remains trapped beneath the 50 day EMA and the 200 day EMA bull/bear line.
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...I have been expecting the bulls and the PTB (Powers That Be) to jam the numbers and put on a rally. With the turn of the month 401k money coming in, I thought this would be the time. That window is now closing, and all rally attempts have been weak and met with selling. The BKX (bank index) also briefly broke support today, and its 50 day EMA closed below its 200 day EMA. It would be very difficult for the markets to rally without the BKX.
...Cash looks like a pretty good option right now.
...I read a post on another message board recently from a man who thinks that DaBoyz game the 401k deposits that come into the market, and that accounts for some of the strange action that we see sometimes. According to him, and I have not checked this out, they way 401k money is handled is heavily regulated by Congress and must be put to work immediately once it has been handed over to the administrators. He says that by law, the funds also must make their buys at the closing price of the day it is put to work. DaBoyz, knowing this and knowing what date the money will come into the market, front run it and take positions ahead of it.
...His theory is that they often buy heavily into the close ahead of the 401k buys, forcing the funds to buy high, then sell either right at the close or early the following day's session and go short, forcing the price back down, thereby fleecing the 401k participants. He claims that it is the strict regulations that the funds must adhere to that makes this game so easy for DaBoyz.
...I don't know. It sounds logical, but I haven't had a chance to check into it much. I don't see a discernible pattern just from a cursory look at the daily charts. But I do intend to watch the hourly charts on Fridays, the 15th and 30th of the months, and the following days for a while to see if I can pick up on anything. Just putting this out as food for thought.
...I'm not putting any of this out as fact. It just was interesting and sounded logical. If you've traded long enough, you see a lot of strange things from time to time.
...Another thing he mentioned is the moral dilemma that a lot of fund managers face. On a regular basis they have all this money coming in, which by their fund charter, they must invest. They know what stocks they are going to be buying. And, except for the 401k money, which according to this poster has to be invested quickly, the other inflow money can take a week to ten days or so to be put to work. What is to keep the manager from taking a position in his or her private account ahead of his fund making their trades? Then when the fund makes their trade, he or she can exit the trade in their private accounts and pocket a tidy profit. Given the amount of shares that funds buy and their power to move stocks, that is another thing that one could see how it could happen if there were unscrupulous fund managers around. It's a good thing they are all so honest.
...Once again, just passing on something that caught my interest and may be worth thinking about. Not verified, not intended to be taken as regard to any particular person or institution. Just food for thought.
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Link of the day:
http://www.dailyreckoning.com/RudeAwake/Articles/RA040505.html
It's an article by Eric Fry entitled "Fading Goldman Sachs", in reference to Goldman's raising their oil price spike target to $105 recently. Some good points here, and as always on the Daily Reckoning, the writing is superb.
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