What happens when the president is distracted with Saudi Arabia, no Fed head of any consequences talks about the need for higher interest rates and a couple of big capitalization companies report good quarters.
What happens is you get a rip-snorting rally like this one where the bearish arguments are buried and the bullish ones come to the fore.
I want to make some points right up front about this rally.
First, it is a reminder that you have to pick and buy when the market is falling apart not when it is flying. Anyone who had the bravery to jump in and do some buying had already been rewarded with much higher prices. It's why I said that I put some money for my kids into the market in index funds. It is why we switched directions and told club members of actionalertsplus.com you had to buy because a panic by others is a terrible thing to waste.
Two, if you don't like the market, if you are one of those people who say that the whole thing is based on smoke and mirrors, you are being given a chance to get out at much more advantageous prices. This s why I always say panic is not a strategy. I had a lot of Twitter (TWTR) haters in the teeth of the downturn when I said that it was okay to do some buying on our Thursday night special and it didn't work because we sold off yesterday. That's going to happen. You have ample opportunity now to say goodbye.
Third, some of the major indicators that I follow worked. When the downside volume is so voracious you often get a snapback rally. I said last week that the late Mark Haines always told me that nine to one down to up volume is too extreme and you have to do some buying. We got ten to one down to up last week and it was a terrific opportunity.
Fourth, I use an oscillator I pay for the Standard & Poor's oscillator and I have profited from it from the days that Karen Cramer and I traded together. The oscillator measures too much buying pressure and too much selling pressure, meaning when the buyers are being too aggressive and euphoric or the sellers are being too panicky.
The oscillator works like this. There is a base line of zero, where there's really no insight and you are on your own. When the index goes up to 3 or 4 you want to be a little more cautious. When you get to five or above it is imperative that you do some selling.
Karen liked to sell short. She was always drawn to that side. When the oscillator was above five she would look for anything to bet against. She would then wait for the big blow off and when the oscillator got to minus 3 she would begin to cover her shorts. When it got to minus five she always feared a snapback rally and she would close out all trading short positions. And when it goes to even lower than 5, say minus 6 or 7, she would force her self to buy something anything that was good enough to own.
That's where we got to yesterday and it worked. This is the snap back rally she would fear as a short seller. It is the much deserved rally I have been waiting for.
