May 31, 2010 - Issue #217

Rise of the Machines

CNBC guest, very astute hedge fund manager, Douggie Kass expressed his opinion that technical analysis has become infinitely more difficult because of automated trading engaged in by institutional traders. He now places more weight on fundamental analysis.

All the more reason to buy Puts to protect long stock positions and Calls to protect short stock positions.

I doubt traders will stop using charts in their trading.

In times past, it was a contest between 'big money' (read 'smart money') versus 'small money'. Times have changed. Institutional trading dominates. It is now 'big money' versus 'big money'.

And yet, they both can't be right. One side or the other will, sooner or later, realize they're on the wrong side of the trade. When that happens, markets will break out of congestion moving up or down to the next congestion. Only charts show when and where that takes place.

Heads Up

W. D. Gann, a keen market observer, although not an astronomer, nevertheless, was fascinated by the apparent coincidence of important market 'pivot points' and astronomical dates. Theories exist for estimating time and price of important market turning points but astronomical occurrences are computed with mathematical certainty.

There is no logical reason why these occurrences should coincide yet, empirically, they have.

The 'Full Moon' and 'New Moon', among others, have been cited. Therefore, one might be well advised to be aware of their occurrence. Note: The first 5 business days of 2008 concluded on a 'New Moon' and we all know how that worked out. Coincidence?

6/12 Saturday - New Moon (Observe market action Friday & Monday).

6/26 Saturday - Full Moon (Observe market action Friday & Monday).

During the next two weeks, the following DJ-30 components report earnings. Keep a sharp eye out for possible price swings leading up to 'earnings day' (Subject to revision):

None.

Dow score card for the week ending 5/28/10.

DJ-30: 10136.63 -56.76 -0.56%. The Real World (arithmetical) DJ-30: 44.71 -0.25 -0.56%.

UP: 10, Down: 20.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 0 (N/C) 0%:

None.

Consolidating (Generally Lower Highs/Higher Lows) 21 (+5) 70%:

+*AA, +*AXP, +*CAT, +*CSCO, DD, DIS, GE, HD, HPQ, IBM, INTC, JPM, KFT, +*MCD, MMM, MRK, PG, +*TRV, +*UTX, VZ, XOM.

Declining (Generally Lower Highs/Lower Lows) 9 (-5) 30%:

BA, BAC, -*CVX, JNJ, KO, MSFT, PFE, -*T, WMT.

+/- denotes change of direction.

* denotes change of category.