Indications of Institutional Buying...

FUNDAMENTAL ANALYSIS
The Dow is up 51.70 points today on upbeat housing data. However, is the housing data really that great? Of course NOT! There is a forward looking index embedded in that data which is indicative of how the housing market will do in the next 6 months to a year going forward and that is the BUILDING PERMIT number! That number is down 6.6%! That means that housing is going to slack going forward! But the market rallied nonetheless... before I get cheated again by the market, I noticed a secretive activity taking place in the marketplace recently and today's market action cued me on it and suddenly everything made sense. INSTITUTIONS ARE NOW BUYING! Now, institutional buying is VERY different from how you would buy! When you feel like buying, you just buy and most of the time get invested 100% but institutions cannot do that! These big guys buy in the tens of billions! Such HUGE volume simply cannot get digested in one huge trade, neither would any institutional trader build positions in one fell sweep! Institutions select an entry level and try to keep the market around that level while buying in sensible, almost invisible blocks! We saw one buying back on 13 Nov, which brought the market up too much! They held off again and then today, they did it again and this time, keeping the market as stagnant as possible. Characteristically, these guys buy towards the end of the day so they don't end up like a fool just before going home! That's what we saw today! Well, it is not surprising at all to see institutes invested in the US market buying right now as the 13000 level does present a very good value level where a lot of great stocks are somewhat undervalued. If this continues, it could provide a strong support at the 13000 level and perhaps, end the year higher? Well, tomorrow's big mover will be the consumer sentiment as well as the index of leading indicators (see economic calendar). Seriously, I don't think these numbers are going to do a great deal to help the market as most investors would want to get out before the long holiday especially in this uncertain market.

TECHNICAL ANALYSIS
The Dow formed a HUGE spinning top formation today on increasing volume. A Spinning Top formation always tell "Uncertainty" and often precede a change in trend. A spinning top formation is the result of a draw between the bulls and the bears whom both won half the day each. I will not be surprised to see the market higher tomorrow but that is not going to trick me into believing that the market is going to rally from this point... yet. It could but it's just not convincing yet. In fact, a 200 or 300 points rally tomorrow is still not going to convince me. What will? A convincing break above the 13250 level on strong volume along with a good follow up. This market is just too volatile to believe that a single 300 point rally is going to continue for any significant number of days. In fact, the VXO (original volatility index) barely nudged on today's gains (see daily VXO chart here)! I still prefer to read volatility off the original index not just because that's the first volatility index that I came to know of early in my professional life but I also feel that it is more reflective of volatility rather than a mere inverse of market action (yes, I know the new one is not a mere inverse too but it just seem that way after a while). As you can see, our Market Stability Meter is still pointing red and volatility is a big part of that calculation.


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