Trader’s Narrative

The calendar is ticking away with just a few days remaining. I’m finishing the year by taking a look back at each month to highlight the commentary from this blog in an introspective attempt to wrap up the year that was and prepare for the new year that will be.

If you missed the other monthly highlights, they are here:

Jan - February - March - April - May - June - July - Aug - Sept - November - December

And that brings us to the month of October 2009:

• Chat With Jason Goepfert & Charles Kirk
  Charles hosted a chat with Jason Goepfert of SentimenTrader which featured a Q/A session about the markets, sentiment and just how much speculative juices had flowed back into the stock market.
• Market Reaches Important Breadth Levels
  In the first few days of the market I pointed out that the shallow retracement which had started in September had already provided us with some extreme short term readings. This coincided with the bounce that took the S&p 500 about 7% higher into mid-October.
• A Technically Driven Market
  While many were waving their arms at the many reasons why the stock market shouldn’t be going higher, prices ignored them and went higher anyway. Here I pointed out the fallacy of losing sight of a technically driven market and why based on the breadth (percentage of components above their 50 day moving average) the market was acting very strong.
• How I Learned To Love Mean Reversion & Stopped Worrying About The Bear Market
  Continuing with the concept of a ‘technically driven’ market, I showed that the number of new 52 week highs started to return to ‘normal’ levels. This is one of the important internal market statistics that Lowry Research watches, by the way, to monitor the health of the bull market.
• Stocks Rise Into Thin Air (Again)
  Right at the what turned out to be a short term top in mid-October I switched gears and issued a caution. Based on the distance between the S&P 500 index and its 200 day moving average, I pointed out that stocks were going to rest or correct. The S&P 500 hovered around 1095 for a few days and then fell for the rest of the month.
• Lowry Research: Turbulence Ahead, Uptrend Intact
  An update from Lowry Research provided a similar cautious take, except it was based on different technical metrics. While continuing to believe in the longevity of the rally, they (correctly) called for a retest of the 50 day moving average.
• Jeremy Grantham: “Markets Being Silly Again”
  One of the smartest investors around, Grantham, began to sound reticent. While he had correctly identified the bear market back in 2007 (World is a Bubble) and then correctly turned bullish at the low in March (Reinvesting When Terrified), he now believed that the S&P 500 was slightly over-valued.
• Stocks Bounce Off Short Term Oversold
  While I was bearish in the medium term time frame (wrong!), I was bullish short term (correct!). October ended with the S&P 500 of its monthly high but setting up for another swing higher.
• This Tenacious Rally Has Seasonality On Its Side
  Seasonality and historical market patterns suggest that the rally had the wind at its back. On average, when September and October have been positive, the rest of the year have also been very good to investors. This prescient guest commentary from Wayne Whaley set the stage and both November and December unfolded exactly according to it.

Jan - February - March - April - May - June - July - Aug - Sept - November - December