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My Views: Clarity And Agreement

July 28, 2008 9:40 PM

piggybank2.jpgI have mentioned many times that I believe that supply and demand at different price points drives the markets - nothing more. It is no different than any market of any nature. The only difficulty is trying to determine where there is more demand that supply and vice-versa. In addition, that demand/supply curve can radically change based on news - so it can be a moving target.

This is why I believe in something I refer to as “clarity and agreement”. This is where the direction is clear and there appears to be agreement as to where the buyers or sellers are. If there is ambiguity, then do not bother with it.

Let’s examine some recent stock moves.

MRK: The stock made a gap down on 07/22 and the gap was clearly sold. Then, it proceeded slightly higher the next few days. Is this clarity or agreement? No. If you believe in my philosophy, you should not be long the stock under any circumstance’s in this range.

AAPL: This is more difficult. We had a gap down that was bought. I had even mentioned near the open of the gap down day that the open low was bought and “traders are likely to be long above it”. It proceeded to rally higher the remainder of the day and the shorts got crushed. The problem is going forward. On one hand we have a gap down. On the other hand, the gap was bought. Therefore, there is some ambiguity there, obviously. However, there is likely to be some agreement that the 07/22 low needs to hold. Therefore, once again, I expect traders to try and hold that low and will likely be long above it.

GOOG: Why anyone would buy GOOG after a gap down was clearly sold is beyond me. Remember my views on RIMM after the gap down was sold? I rather harshly stated that “anyone long here is a complete moron”after Cramer came out and said to buy RIMM “it just had a bad day”. Well, the GOOG gap was sold, and being long strength was just as moronic, in my estimation. There was clarity and agreement on GOOG, IMO, and that was to be short the stock on any strength.  Compare this to the gap higher in April. The gap higher was bought. There was complete clarity and agreement - LONG.

IBM: I mentioned back on 07/02 I believe, that “if you just had to be long something” the trade was long IBM above the 07/01 low. Why? Because we had what appeared to be some agreement on a low, and no agreement - ever - on a high. Therefore, there was only one trade and that was long. If there was some agreement previously on a high, then the stock may have traded in a tight range until one cleared. But that was not the case with IBM., just saying “if”.

I hope I have provided some insight into what I view as “clarity and agreement”, as I believe it is important. Look for what YOU believe and see as clarity and market agreement and I believe the probability of being correct is far greater. Any opinion I give, I look for both. If I do not see it, then why bother with it. Move on to something else - or nothing at all.

Written by Tom@StockBlade.com · Filed Under General Investing/Trading Commentary 

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