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Tactical Investing in the 21st Century. The FMAM Team is composed of seasoned Wall Street professionals with combined active experience on the buy side and the sell side of the Street. Together, we have worked as RIA's, managed BD's, banks, and mutual funds as well as proprietary trading desks.... More
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  • The Momentrix View of the Markets for Thursday August 4, 2011-
     Another Rout. The Dow has lost 1200 points since July 21, 500 points today alone. The S&P 500 closed down 4.8% and the NASDAQ down 5.1%. Yesterday we were looking for a bounce in the market that did not occur in the least. We are in the midst of a liquidity crisis originating from Europe. The stock markets around the world are one of the few liquid markets and investors are selling indiscriminately to raise cash.
    The damage was great today but the selling was still not intense enough to call it a panic, a necessary ingredient to capitulation. It is ominous to have such a sharp sell-off prior to a Friday and Monday, historically the days crashes happen on. We are not calling a crash but it is not out of the realm of possibility with a deleveraging world lacking liquidity. When there is a lack of liquidity, not only from the crisis but from summer trading, ranges of price can be very wide.
    The last week we have had what we call price loosening, meaning ranges are getting wider and wider. This development can lead to large price moves in either direction. The further this move lower goes the larger the snap back will be. It is this mechanism that makes hedging large price drops such as this tough to succeed at. We are looking for the snap back; it will be an opportunity to lighten up on positions. The timing of the snap back is almost impossible to predict and we hope it’s not more than a day or two away. Many stocks that are the most extended to the downside are likely to have the biggest move up. The reason we mention this is not because we want to buy those stocks but because we are looking to capitalize on those moves for the stocks we own. Selling into the panic is almost never the right move and we want to wait for the rally to do so. Easier said than done.
     
    Aug 04 5:28 PM | Link | Comment!
  • The Momentrix View of the Markets for Wednesday August 3, 2011-
    Volatility and fear permeated the world markets today, whether it was stocks, bonds, or currencies. A mid morning sell off triggered by Europe took the Dow down about 140 points and a hint of panic was in the air. Volume was very heavy on the exchanges confirming the heavy selling. Once the initial spike down occurred, the stock market did stabilize then trended up for the rest of the day, finishing up slightly. The S&P 500 closed the day up .5% and the NASDAQ up .9%. Those that did panic were not rewarded, typical for the stock market. Generally when the market feels the worst is just when it will turn the other way, at least temporarily.
    The fear in the market is confirmed with the put to call ratio, closing around 1.35. The higher the ratio the more protection market participants are buying, indicating fear of lower equity prices. The 1.35 close is a high number and could signal a temporary bottom for the market. The heavy volume with the reversal in prices also signals a “churn” day, another signal we use for temporary bottoms.
    The extreme selling in the last 8 days makes it very difficult for the market to continue lower in the interim. Higher prices are likely in the coming days followed by a roll over that tests the recent lows. If the recent lows hold, there is potential for a tradable rally. A break of the lows will signal a continuation of the downtrend. Probabilities are about 50/50 at this point for either scenario but judging by the news flow and economic statistics we would lean toward the lows not holding. Therefore, we will look to reduce lagging positions and potentially further hedge the portfolio into strength.
    Aug 03 4:42 PM | Link | Comment!
  • The Momentrix View of the Markets for Aug 1, 2011
    Monday August 1, 2011- Volatility defines the market today. Dow futures were as high as 185 points higher overnight and the Dow cash market was down as much as 140 points at the low of the session. The bottom line is this was another failed rally. These wide ranges usually occur at times of extreme uncertainty or when there is a major trend change occurring in the market. This market may have both possibilities. The trend change could be from a bull market to bear (major change) or from correction to continued bull market (minor change). It is too early to tell at this point but there are some early warnings to a major trend change based on the macroeconomic environment.
    One casualty of this increased volatility is that trend followers will have a difficult time making money. Momentum players buying or selling the price direction will also have a tough road. Only traders that “buy the dips, sell the rips” seem to have the optimum environment to thrive. In the very short-term we see this volatility continuing as long as there is uncertainty surrounding the debt ceiling. Any failed votes (very low probability) will be very bad for the bulls. The news of a passed bill may only temporarily provide safety as the ratings agencies will have to act, an event that could occur anytime in the next couple of months. We remain cautious on this market as risk appears to be high right now.
     
    Aug 01 4:48 PM | Link | Comment!
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