Market Timing – The Thursday/Monday Syndrome Revisted

“That was some tsunami of selling today” quipped one of my friends. I guess I have some ‘splaining to do.

For those that missed the previous article (click here for the full post), the “Thursday/Monday Syndrome” takes hold with massive selling on Thursday, choppy trading on Friday, and then another massive sell off the following Monday.

Instead, the NYSE and S&P500 rose 2.5% and 2.3% respectively, while the NASDAQ put together a 1.3% gain. And these indexes closed near session highs, which is another sign of strength.

What gives?

A deeper look makes me think it was a lack of sellers, rather than a tsunami of buyers, that pushed the markets higher today.

The 2.5% gain in the NYSE was accompanied by a 26% drop in trading volume (lightest since 9/20). The NASDAQ was actually up 0.5%, but that is hardly a sign of strength. And either way, both indexes were under their average volume, which is not a sign of strength. Couple this with the fact that new 52-week lows outpaced new highs, and today’s rally is suspect.

I recorded the bid prices for the first in the money call on DRN, EDC, FAS, TMF, and compared them with the bid prices for the first in the money calls from last Monday. The bids for today (on a percentage basis) were higher than last week! EDC calls were paying out a 20% premium! This doesn’t seem like the stuff that rallies are made of…


Sources:
Catastrophic Success
John Mauldin | September 24, 2011
http://www.ritholtz.com/blog/2011/09/catastrophic-success/

Stocks Extend Rebound In Mixed Volume
Vincent Mao | September 26, 2011
http://www.investors.com/NewsAndAnalysis/Investing/BigPicture.aspx


P.S. Free Access to IBD from Sept 26 to Oct 9th!

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About T. Knight
Blogging about my journey to financial independence via investing for cashflow.

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