Tuesday, September 29, 2009

Short Term Catalyst Gauge

I woke up at 6 AM with an idea.

I have no formal way of measuring short term market action but it wouldn't be that hard to put together a simple measuring system each morning, adding positive factors, subtracting negative factors and seeing what the result is.

Let's suppose we just add up all the positive catalysts and say 10 or more means strong rally, 5 is neutral and less than 5 is a down day.

There's no way to create a precise system, but the point is, a crude gauge is better than none at all.  Looking back at Monday, here's what I might have done had I been paying close attention:

End of Quarter Mark-up:  +4
Markets already sold off last week, SPY near support   +1
Yom Kippur low volume, easy to push things higher  +4
XRX and JNJ merger news      +2
strong dollar      -1
Japan / China markets were weak     -1

  I'm sure you could add other catalysts... these were just the major ones off the top of my head and +9 is exactly what we got, if not a +10 rally on Monday.  Okay so here's what I've got so far for Tuesday:

End of Quarter Mark-up:  4
heavier volume coming:  -1
MBIA downgrade:         -1
Sequenom blow-up:      -.5
Asia markets up:             1
Slightly toppy condition due to yesterday's rally:  -.5

It's still too early but so far my crude gauge is at two for Tuesday.  However, new catalysts may come into play at any time.

Strategy:  End of Q mark-up is the most powerful force right now and it's probably why the biggest winners yesterday and possibly today will be previous winners.  Stocks like RINO, WFMI, GMCR, HITK, AAPL  and everything else near new highs are either going to go higher or stay flat.

On the flip side, now is not quite the time to buy RIMM which may be dumped by those wanting it off their books.

My ideas: Possibly HITK although I also like HOGS, also near a new high, or CPBY -- both value China names.  Obviously with my new Gauge showing a big fat zero, today also might be a good day to catch a FAZ move, considering MBI is a problem child.

Anyways, perhaps there's a way to formalize my Gauge... the fact is, I've never really tried to measure the markets each day like this.  Perhaps I'll create  a section on the sidebar of the blog so I can quickly update it.  Also, it needs a cool acronym.  Maybe just  Equity Catalyst Gauge -- so like an ECG, it measures the pulse of the market.  Yes, ECG it is!

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