Sete momentos mais marcantes de Centeno no Banco de Portugal

[Camisa Roxa]

THURSDAY a.m.
December 19, 2002



Thin and Whippy
by David Nichols

A 60 minute chart of the OEX since December 6th shows a treacherous journey for traders.



Only the shortest possible time horizon would have allowed traders to squeeze out profits in such an environment. And this is likely what we've been seeing lately -- short-term trading. As volume dries up heading into the holidays, the main players are the professional traders, who are always willing to book any quick profits as they come, and also quickly cut losses short.

At any given time, there are, say, 1% of all outstanding shares "on the table" and available for sale. (When I have more time I can figure this out exactly.) At any particular moment, the majority of market participants are not out there buying and selling. Most of the shares are being held away from the trading action.

During the periods when the market is stuck in a range, it's because the same small pool of shares is trading back and forth among professional traders . It's just a tiny fraction of the outstanding shares flipping back and forth, often for tiny gains and losses. The market more easily achieves balance with this kind of thin trading, and that's why we see moves squashed at the nearest support and resistance points.

It takes fresh information, or a bigger catalyst, to bring in shares held by those who trade less frequently. The information has to be "big" to get more people into the fray, and to expand the number of shares on the market. It's this fresh, bigger supply of shares that creates the chaotic, streaky movements in the markets, as supply and demand are knocked out of balance.

This helps to explain why thin trading can be particularly tough. The market can be buffeted around more easily by smaller events and news flow, and can stop and reverse -- or achieve balance -- before anybody has time to react. This is why we've been quick to take our profits in our options service right now.

Looking again at the 60 minute chart, the moves up and down definitely look like thin, whippy pre-Holiday action. It would now be in character for the markets to hold right here at support, and rally right back up to the top of the range -- once again frustrating those who are betting on a breakdown.

Heading into the end of the year holiday period, a lot of things -- including trading -- tend to be put off until after the holidays, unless it's absolutely necessary. With nothing very clear-cut or confirmed on our sentiment dashboard, it's probably a good idea to just rest on the sidelines for a while.

Sentiment Dashboard
by Adam Oliensis



SENTIMENT TANK: The tank of negative sentiment filled up another 5% to 60% on Wednesday, pressing on the upper limits of its recent range, just as the S&P 500 pressed on the lower limits of its recent range, closing about 1.5 points above Friday's close.

SHORT-TERM GAUGE: On Tuesday the short-term (hourly) momentum gauge rolled over onto its side. We mentioned in Wednesday morning's comments that it was ripe to turn down and on Wednesday it did so at the open. Intraday the gauge didn't make much additional progress so it went through a steep down period and is now backing off from that steep slope. There was a spark of fear at the open but by 10:45 EST that sparkler had flared out.

MID-TERM GAUGE. The mid-term gauge continued its slow and steady decline deeper into the downtrend, dropping to 58 from 62. Our Confidence Diffusion Index (CDI) flickered back across the Zero Line. On Wednesday morning it had crossed over to a +1 bullish reading. Now it has flickered back across to a +1 BEARISH reading. The main thing we can understand from this action is that the market has been consolidating since December 9. However the mid-term trend off the December 2 high remains down and has not been reversed by this week-long consolidation. The tank has been filling up with negative sentiment since December 2, as represented by the blue arrow in the Sentiment Tank.

LONG-TERM GAUGE: Weekly momentum remains neutral. The CDI flickered back to 0 from a +1 bullish reading. The long-term gauge is responding to the progression represented by the black arrow on the Sentiment Tank. From the October low the Tank dropped from 100% full down to 48% full at the December 2 high. Since then the mid-term decline phase has shown up as "flat" on this longer-term gauge.

The market has achieved a measurable level of "non-trendingness" that comes but rarely. The same "pinch" that we saw on the Nasdaq's chart in Wednesday's Closing Bell is visible between the blue and black arrows in the Sentiment Tank above.

A break out of that pinch will almost certainly give the weekly gauge some direction. "Which way?" remains the question. There are quality arguments on both sides, but until the market breaks out of this pinch, they are all just that. Arguments. With the mid-term trend down and the long-term trend flat, one probably should be leaning a bit toward "down." (Operative phrase, "a bit.") There are a lot of wildcards in the deck at the moment.