Technical stock picking in a strange market

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Stock market fluctuation

Photo Source: Today’s Seniors Network

The holiday-filled summer and geopolitical threats are turning the marketplace into a prediction center for all things political and slightly economic. Oil’s recent run to $147 was empowered by news of Iranian missile tests and worries of terrorism in other parts of the world. Prior to the large oil gains, news like this hardly made headlines, yet now it is determining the price of oil and corporations on the stock market.

Do thinned economic news means more fundamentals?

One would think that slowing economic news would give less power to the fundamental investors and more to technical traders. Instead, it has become the complete opposite; the slowing economic news has actually led to a number of new fundamental players. If you’re good at predicting terrorist attacks and missile defense programs, then you would be a great oil trader. However, that’s not how the game is supposed to work.

We’ve seen the power of fundamentals last week when the S&P500 fell to the critical 1250 support line, but continued to freefall through it. This kind of fundamental power should truly start to worry technical traders; we were all looking to see a bounce from 1250, especially after a long sell off, but the market instead moved through 1250.

What would be normally defined as a very strong support line was even confirmed by the short term morning doji star that existed on the S&P500 chart for more than a few hours in early trading. By all hopes and definitions, it was certain that the market was going to rally. That is, until it actually gapped THROUGH the 1250 mark and fell to 1240.

Technicals don’t work in bad economic times

It seems as though the importance of trading the technicals need to be toned down in a market that fluctuates based upon news, rather than prices. Price has become slave to the economic news rather than the medium of exchange; it’s not about buying at X price, but buying here because tomorrow it will be there.

Prices no longer matter; oil is up furiously, and the market is buying just to buy. Oil traders are expressing the bull market optimism. Market making for oil futures is extremely profitable; the market is buying, buying, and buying and very few are selling...at least until this past month where the amount of short sellers actually outnumbered buyers.

Fundamentals prove to be solid

The fundamentals for the stock market, or any market, appear to be solid outside the realm of the finance world. The corporations that make up the S&P 500 would have logged a hefty 9% gain in revenue growth year over year if the banking and finance losses were not included. Though much of this has to do with the economic stimulus package and greater earnings on the commodity side, the market is still racking up nice profits, especially considering how hard we have fallen. The divergence between a 20% slide and a 9% increase in earnings is baffling to say the least.

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