5/10 Pre-Market notes

http://www.cross-currents.net/charts.htm

http://www.cross-currents.net/charts.htm
Once in a while Cross-Currents.net, a subscription site, puts out a free report for public viewing. They are always worthwhile reading, whether you agree with them or not. Their charts are compelling, and reflect a little different take on things than most other sites. The 5/2 report is entitled Mania Still In View. There are many interesting sections and charts in this article, and I recommend taking a few minutes to review it.
...A couple of the most fascinating from my viewpoint: First, in the past two years program trading has increased until it now constitutes the majority of the trading action on the exchanges. This comes as no surprise, and I think explains a lot of the 'strange' action that occurs on many market days. More on that some other time.
...Second, they show graphically the effects of the old saying Sell in May and go away and how that strategy compares with the buy and hold mantra we constantly get from the funds. If you go to the link, you can review the chart and the full explanation, but here is the gist of it. If you had put $10,000 into the market on November 1, 1950 and never touched it, at the end of 2004 your account would be worth $10,264.
...On the other hand, put that same $10,000 into the market on November 1, 1950, sell out every April 30, and re-invest it all every November 1, and your account would have grown to $496,630.
...Stock have averaged over 15% annually from November-April, but just about zero from May-October. The figures don't take into account dividends, but as Mr. Newman of Cross-Currents points out, they also don't take into account the ravages of inflation.
...By the way, Cross-Currents believes there is a good chance the tops for the year are in, and they rate as even the possibility of Dow 8500, SPX 960, and Nasdaq 1000-1100 this year, possibly in August.
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http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID641835
BrainFood on StockCharts.com site is looking for the market to roll over starting today.
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...Some thoughts on the markets:
...Last year on ClearStation's message boards, one of the traders opined that the trading game has changed a lot recently. I totally agree with that. I have just come through one of the worst periods of trading I have experienced personally in years, and that has been frustrating. I know the game is played out by humans with emotions (or at least until recently - computer program trading now accounts for over 50% of trading volume), and the game always changes. But there have been a lot of things that I have seen over the past year that just do not seem to make any sense.
...The ClearStation trader's opinion is that the hedge funds have found a way to game the market by forcing the mutual funds to defend their turf and the markets. That makes sense to me. Consider this. Hedge funds can go long or short or any combination of both, in any market or arena, anywhere in the world at any time. Most mutual funds, on the other hand, are bound by their charters to be long only in the stock market, cannot short, and can only have certain percentages of their assets in cash. They must be invested long in accordance with their charters.
...That is sort of like the old Bill Cosby comedy routine from years ago about the Revolutionary War being a sporting event. The revolutionaries win the pre-game coin toss, so they get to wear whatever they want and hide behind rocks and trees, while the British have to wear bright red uniforms and march in the open in straight lines. That's how I see hedge funds vs mutual funds.
...Anyway, the theory is that the hedge funds by shorting, can force the mutual funds to defend the market by buying, whether they want to or not. The mutual funds need the markets to stay up in order to stay in business.
...Hedge funds also may account for some of the 'that makes no sense' trading action that seems to be occurring much more often than usual recently. If they can be short the market, or segments of the market, or even just certain stocks, at the same time they are long currencies, bonds, or anything else, then that can account for some of the screwy action in the markets. That may be the reason why we are seeing things in daily market action that we shouldn't be seeing. It may be why the markets are up, down, up, down, up, down one day to the next as they have been recently. And even why there are huge runs in the market for an hour or two, followed by a complete tank job the other direction, followed by another huge run.
...Hedge funds have a lot of ammo. They are only for the wealthy. And now there are thousands of them. Even more fun for all us little guys!
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...The new high/new low numbers have improved a lot for the NYSE. Yesterday was 102 new highs, only 29 new lows on the NYSE. The Nasdaq still has work to do at 52 new highs and 75 new lows. Volume is still light.
...Happy trading all.

http://www.cross-currents.net/charts.htm