Today's pin action could be a sign of future price direction
Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    The Institute for Supply Management (ISM) reported its November manufacturing index at 36.2 (anything under 50.0 reflects contraction) versus expectations of 36.5 and 38.9 recorded in October.
    http://econompicdata.blogspot.com/2008/12/manufacturing-bad-to-worse.html

    October constructions spending fell 1.2% from September versus estimates of -1.0% and September’s -.3% reading.

   Other

    Two other bits on economic information both of which contributed to yesterday’s poor Market action:
   
(1)    the National Bureau of Economic Research [NBER] declared the US in recession.  This group does not adhere to the traditional definition of a recession [two successive quarters of economic decline]; however, I think investors in general were so ready for some kind of official designation, that they accepted it.  Puzzling to me was it caused the stir that it did.  As I said, it seems as though everyone has been expecting a recession or worse; so I am not sure why, with stock prices at the levels they are, its acknowledgement would prompt much selling.
http://paul.kedrosky.com/archives/2008/12/01/nbers_recession.html


(2)    China reported its equivalent of the ISM manufacturing index; and it looks to be in a waterfall formation.  This isn’t the first month of a sharp decline, so there is nothing terribly new here.  But as with the NBER recession call, it appears to have given investors a reason to sell [take profits?].
   
An interesting look at how W’s laissez faire policies helped bring about the credit crisis:
http://www.ritholtz.com/blog/2008/12/bush-administration-ignored-mortgage-meltdown-warnings/


    Spinning last Friday’s Christmas sales reports:
    http://www.ritholtz.com/blog/2008/12/spinning-black-friday-retail-sales/

Politics

  Domestic

  International War Against Radical Islam

The Market
    
    Technical

    An historical look at stock performance following big down days:
    http://traderfeed.blogspot.com/2008/12/historical-patterns-and-regimes-look-at.html

    An update on money flow:
    http://traderfeed.blogspot.com/2008/12/cumulative-money-flow-for-dow-stocks.html

****************************************

    Yesterday was another of those super volatile days.  In fact, after a very soothing 5 day rally, the indices (DJIA 8149, S&P 816) are once again challenging their recent lows (10/10: DJIA 7853, S&P 839; 11/19: DJIA 7416, S&P 741).  In addition, after briefly trading above the downtrend line off the November high (a positive sign that the short term downward momentum had been broken), both indices closed below that downtrend line (a negative).
    http://bespokeinvest.typepad.com/bespoke/2008/12/sp-500-trendline.html

    There were some positives to yesterday’s pin action. (1) while the volatility index was up sharply, it didn’t approach the lofty levels it attained when the price indices were at the same prices as they closed yesterday, and (2) volume was anemic--which is what we want, i.e. low volume on price declines and high volume on price rises.

    My guess is that this current test will be successful; but since it is the first test, our Portfolios will do nothing until we know that for sure.  And we could know that as soon as today.  At the moment, I have a list of stocks to buy; should that happen today, I will notify you via a Subscriber Alert.  This action would take our Portfolios’ cash positions from 22-23% down to 20%.  But to reiterate, I am taking no action at Market open.

   





Posted 12-02-2008 8:21 AM by Steve Cook