Alan Farley has an article which lists three troubling things about this spring’s rally. He argues that the tech rally looks manipulated to him (aren’t they all???) and also takes a look at what institutions are doing via the last hour indicator. (hat tip to Online Trading)
Let’s look at three things I don’t like about the spring rally. This concise listing isn’t a prediction, because I doubt we’ve seen the highs for the move yet. But these elements raise serious questions about the market’s ability to break out once we reach the 2005 highs.
Here comes number one: The slingshot off the April lows bailed out a lot of tech bulls, but it also generated a great deal of instability under the surface.
Specifically, the market printed few pullbacks or tests during the six-week move. This is unnatural because it defies the normal evolution of market supply and demand. [read the entire article...]
Strange way to make a case that the rally was manipulated. Manipulated by whom exactly? Farley essentially says that retail buyers have been taking the market up, short-covering has taken the market up, AND institutional players have been biased to sell the whole way….including a big blow-out in program trading volume that marked the April lows. Sounds like a mixed bag of signals to me. Are the retail folks truly so strong now that their buying can outdo institutional selling? Could we also argue that institional selling is nearly spent and the idle cash that has been created provide the next big push to get the market to even higher ground?. (I find it very odd that Farley makes no fuss over the fact that his “last hour indicator” ramped ever higher and higher as the market churned with a slightly downward bias). Finally, my quick look at the OBV on the QQQQ, the NASDAQ composite, the DOW, the S&P 500 are all at 52-week highs! Isn’t that a signal of strength…no matter who is *supposedly* doing the buying? What am I missing here? (And yes, I am gonna ask Farley the same thing!)
Options expiration will have muddied the water on Friday – but the black candlesticks in the NASDAQ and NASDAQ 100 on heavy volume (with a close below 2,100 and 1,550 respectively) doesn’t look pretty to me. I am watching the secondary indicators ($NASI, $NAA50 and $BPCOMPQ) for a ‘cleaner’ shift back to the bears but things are looking a little sketchy in the short term.
The S&P looks the most interesting index to watch as it threatens new highs – if its move can hold it can only be good news for the other indices.
JMO,
DJF
You have to love the power of the Internet. Farley responded to my questions with a quickness. I think the answer below is incomplete, but it steps in the right direction for more clarity. Here is what Farley sent to me:
“institutions need do nothing more than step out of the way, little folk are natural bulls. no worry about them selling until they’re forced to do it.
Alan”
I am tired of reading how people are saying Intel’s run-up is unsustainable and/or manipulated. Serious investors (not traders) who do their due diligance know that Intel is operating at maximum capacity and struggling to keep up with demand. Intel was heavily shorted because of its past mistakes, but is shaping up to be a classic turnaround and is bouncing off of its lifelong uptrend. The Apple deal is just confirmation of Intel’s strength.
BTW… Farley’s answer is pure BS and shows he knows nothing about what he’s talking about. Take a look at the institutional buying for Intel:
http://thomson.finance.lycos.com/lycos/iwatch/cgi-bin/iw_ticker?t=INTC&range=0&hdate=0&i=3&l=1119247866
If anything it looks like institutions were only walking the bids down and taking the stock from retail investors were selling in a panic due to the wild price fluctuations after Intel’s mid-quarter update. Smart money (ie. non-retail) know’s Intel’s mid-quarter updates are always conservative. There is no way Intel would encourage analysts to up their eps estimates past a price Intel can’t beat.