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A "Fade" Explained
I'd like to take a moment to review some of my thoughts relating to today's "fade move" I made into the close.
On Tuesday, October 4th, the market was following through on the prior day's breakdown from what was a multi-week trading range. Sentiment was very bearish. Hardly a single Bull could be found on the business TV shows. Basically, it was all gloom and doom.
Then word came that the European "players" would recapitalize the banks. Dexia folded and was bailed out, but this was viewed as a positive because it was "Europe's Lehman moment". They now admitted they had a problem.
By Sunday, October 9th, Merkel and Sarkozy had met and released a joint statement which told the world that they were "determined" to find a solution and they announced that they had a plan to have a plan, later.
This news added more fuel to the market rocket and we surged higher this past week. The major indices all closed at their highest levels since August 3rd.
The move has been impressive. Approximate (and grossly rounded) gains for the nine days as measured from the October 4th intra-day lows to today's closes are as follows:
| Index | % Gain |
| DJIA | +12% |
| S&P 500 | +14% |
| NASDAQ | +16% |
| S&P Small Cap | +17% |
| Russell 2000 | +19% |
Remember, these moves occurred in just nine days!
Oh, did I mention that volume has been steadily dropping throughout the 2-week advance? And did I also mention that today's NYSE volume is the lowest since back in July?
Well, yep, that's right, volume has been declining on a move that has a lot of people calling for a new bull market.
And all of this has been triggered by the hope and belief that European leaders now "get it" and because they do they will now "fix it". Therefore all is right with the world.
Recession? What recession?
Now hardly a single Bear can be found on TV.
Based upon the above, the "fader" in me just couldn't continue to sit on my hands.
We are looking at a market that has had a huge run, in a short time, based almost solely on hope, supported by declining volume and which is now short-term very overbought.
Thus, putting on a little short position in the Daily Decision-PRO here just seemed like the thing to do.
I just hope I don't get trampled by the stampeding herd.
Have a good one...
Curtis Bergquist
Options Manager: Daily Decision-PRO
P.S. Here's an unabashed pitch for Daily Decision-PRO Service - It's beaten the market handily for five months running now.
S&P 500 - Last 12 Month
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