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-- Posted Monday, 25 January 2010 | Digg This Article | | Source: GoldSeek.com

Rick’s Picks

Monday, January 25, 2010

“Phenomenally accurate forecasts”

Wall Street seems to have caught more than just a whiff of the Great Recession last week. More like the scent of a corpse, notwithstanding the full court press by Government and news media to convince us there’s a recovery going on.  The insane energy that had been pushing stocks higher since last March now seems to be failing. Notice in the chart below how the Nasdaq index has suffered two sharp setbacks since November. There is nothing bearish about this per se, since all uptrends need to correct now and then. However, it is the price action that followed the breaks that raises doubts about the veracity of the ten-month-old bear rally. The thrusts were noticeably tepid compared to the spectacular surge that lifted stocks from a funk in July, taking the broad averages to new recovery highs.

What this suggests is that short-covering, the main source of power for bear and bull rallies alike, is running out of fuel. And it’s not because shorts are so certain about the economy’s death spiral than they can no longer be spooked. More likely is that they have simply left the game in order to survive. To be sure, even a relative handful of panicky shorts can goose stocks sharply higher on a given day, and there are probably still enough of them around to levitate the Dow by 150 points on whatever faintly encouraging speck of bullish news crosses the tape.

Margin Calls

Such buying is driven by margin calls and feeds on itself, and that is why it is far more potent than merely bullish buying, able to push stocks through resistance levels. But the take-no-prisoners rallies of summer have given way to a wafting uptrend that has ceased to spook bears or much impress the public. The market’s tepid ascent reminds one of the story about the two hog farmers who conspired to trade pigs back and forth to raise the price of pork. That’s what institutional traders have been doing since spring, even as individual investors have completely deserted the market. With last week’s slide in the broad averages, evidence grows that, for Wall Street’s “hog farmers,” the game may be over.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. There is a substantial risk of loss in futures and option trading, and even experts can, and sometimes do, lose their proverbial shirts.  Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com

-- Posted Monday, 25 January 2010 | Digg This Article | Source: GoldSeek.com

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