Weekly Market Report: Innovators, Imitators and Idiots

Heavy volume pushed prices higher as Wall Street giants picked up the pace post-summer. These giants we refer to are the institutions, who are also innovators known for establishing trends with their massive appetites.

Just as Warren Buffett describes how retail markets go through three phases of being bought by Innovators, Imitators and Idiots – we see a similar phenomenon with the stock market. After the innovators come the imitators. This is smart money such as hedge funds and professional traders who place bets behinds the institutions. We like to think of ourselves in this crowd.

Last are the idiots who jump in after the trend is secured, often missing the biggest part of it and getting nailed when it collapses. This is Mom and Pop money. They’re often inspired by headlines in awe of a trend’s power. But it’s all hindsight.

Lack of overly bullish headlines and a cautious attitude on Main Street gives the appearance that the market isn’t quite ripe enough for the idiots to pile on. The Bull off the March low has been seen more like a house of cards about to teeter. That doesn’t mean the trend will continue until we see the idiots. That could take time.

As veteran traders we don’t make the mistake of having to guess each and every move. We take our temperatures and swim selectively. But we’re under the belief that recent buying could be a head fake. That assumption comes from weighing odds, not feelings.

September is traditionally the worst month of the year for Bulls. October with all its historical crashes is another.

It’s not hard to see profit-taking becoming a theme at some point within the next couple of weeks. It might even send prices so low that it inspires “Return of the Bear” type headlines.

From a technical perspective, it would also make sense to see gaps filled in on the S&P 500’s chart at the 1018 level. Maybe even the 902 level. These gaps nearly always get filled at some point.

But we shouldn’t lose sight that the market is still a Bull charging. Just about every sector hit a new high last week. See table below.

Of particular interest was the Dow Transports, which according to Dow Theory is flashing a buy for the broad market as the sector plays a key role in moving goods through the economy.

But don’t forget about the Banks. They’re still showing relative weakness in their technical picture against the rest of the market.

Without getting deeper into fundamentals, it’s just common sense that the economy needs healthy lenders to achieve decent growth.

Technically Speaking

MAJOR INDEX PERFORMANCE FOR THE WEEK

BIAS	Index	Chg.	%	Action
+	DJIA	+164	+1.74%	Pegs new high for year
+	Nasdaq	+62	+3.08%	Pegs new high for year
+	S&P 500	+26	+2.59%	Pegs new high for year
+	Russell 2K	+23	+4.05%	Pegs new high for year
or = Above or Below 40-week exponential moving average. + = 50-day MA above 200-day MA

FOUR-WEEK VOLUME INDICATORS
		Accumulation		Distribution
BIAS	Index	Major	Minor	Major	Minor
	DJIA	3	2	3	1
	Nasdaq	5	3	1	0
	S&P 500	3	2	3	0
	Russ. 2K	2	2	3	0
Accumulation = index up with more volume than previous day’s. Distribution = index down with more volume than previous day’s.

SECTOR PERFORMANCE FOR THE WEEK

BIAS	Sector	%	Action
	U.S. Dollar -$DXC

-1.9%	New low for year
+	Gold & Silver Miners -$XAU

+1.7%	Pegs new high for year
+	Consumers -$CMR	+2.57%	Pegs new high for year
+	Cyclicals -$CYC	+4.48%	Pegs new high for year
+	Technology-$DJUSTC

+2.89%	Pegs new high for year
+	Semiconductors -$SOX	+3.71%	Pegs new high for year
+	Software -$GSO	+3.13%	Pegs new high for year
+	Telecoms -$XTC	+4.71%	Pegs new high for year
+	Banks-$BKX	+0.4%	Consolidates under-year high
+	Broker Dealers -$XBD	+3.43%	Pegs new high for year
+	Retail -$RLX	+1.74%	Pegs new high for year
+	Healthcare -$HCX	+1.21%	Just shy of new high

+

Biotechnology -$BKX

+0.34%

Just shy of new high

+	Pharmaceutical – $DRG	+1.28%	Just shy of new high
+	REITs -$DJR

+6.52%	Just shy of new high
+	Homebuilders -$DJUSHB	+0.98%	Just shy of new high
+	Transportation -$TRAN	+5.62%	Pegs new high for year
+	Airlines -$XAL

+9.91%	Pegs new high for year
+	Defense -$DFX	+4.43%	Pegs new high for year
+	Energy Index -$IXE	+5.01%	Just shy of new high
or = Above or Below 40-week exponential moving average. + = 50-day MA above 200-day MA.

Key Releases This Week

Earnings:

• MONDAY: none
• TUESDAY: Adobe Systems (ADBE), Best Buy Co., Inc. (BBY), The Kroger Co. (KR)
• WEDNESDAY: CKE Restaurants (CKR), Dress Barn (DBRN), Herman Miller (MLHR), Oracle (ORCL)
• THURSDAY: FedEx (FDX), Pier 1 Imports, Inc. (PIR)
• FRIDAY: none

Economic:

• MONDAY: ICSC/GS Weekly Chain Store Sales Snapshot (7:45 a.m.), Retail Sales (8:30 a.m.), Manufacturing/Trade Inventories and Sales (10 a.m.), Producer Price Index (8:30 a.m.), NY FRB Manufacturing Survey (8:30 a.m.)
• TUESDAY: Consumer Price Index (8:30 a.m.), Real Earnings (Average Hourly Wages) (8:30 a.m.), Industrial Production/Capacity Utilization (9:15 a.m.), Housing Market Index (NAHB/Wells Fargo) (1 p.m.), Treasury International Capital Data (9 a.m.), U.S. International Transactions (8:30 a.m.)
• WEDNESDAY: none
• THURSDAY: Housing Starts and Building Permits (8:30 a.m.), Philadelphia FRB Business Outlook Survey (10 a.m.)
• FRIDAY: ECRI Weekly Leading Index (10:30 a.m.)

This Week’s Work On Discipline

“ In the last analysis, our only freedom is the freedom to discipline ourselves.” — Bernard Baruch

Comments

[beach bum ...:]

I wonder if things are a little backwards this time. The idiots (I think of myself as part of this crowd) got in first because we operate from emotion. Greed got me in early and kept me in while the "smart money" said this is a bear-market rally. Then I stayed in while the pros said it's going to be a double dip. Then I stayed in when the big guns said the market's way overbought. I'm still in and now the big money's starting to move in chasing performance. Maybe I'll get out when the "innovators" and "Imitators" declare this a bull market.

Sep 14 09:59 PM