Never Fight The Tape

by Larry Levin

Yesterday I acknowledged Thursday was "The Worst Yet" which has given birth to one of the worst weeks in recent history, and puts this month on pace for the worst January in history. Refusing to come to grips with this trend, unless you’re a short seller, is inexcusable for professionals and dangerous to your wealth. What's happening now is no joke.

Instead of writing about today's market action I thought I would tell you about some observations/experiences I have had recently that all have a common theme: Buy now, the low is in.

Although all three experiences have been persistent, the first one sticks out in my mind more than the others. My stock broker's call this afternoon prompted me to write this today but it all started last week. Last Tuesday he called my office and caught me during my lunch break from the pit. He started out in an exasperated voice, happy that he caught me while calling all of his clients, to recommend buying all the stock I could handle. I smiled, then asked which stocks he recommended and WHY!

As far as which stocks he recommended, let's just say the answer was anything, for they were all "on sale." The "why" I should buy, however, caught me a little off guard. His response was a long litany of fundamental reasons; high dividends, low interest rates, great overseas growth, etc. I was surprised because he knows I'm an S&P pit trader at the Merc and would rather discuss fundamentals with respect to the current market sentiment and the current market technicals. It sounded like he was told what to say by a manager or something, because he kept coming back to the "fundamentals."

Of course, I didn’t buy. He sent me a text message Wednesday when the market popped from its low. I ignored it. He managed to reach me again in my office last Thursday afternoon to give me another chance. After all, the S&P had rallied 51.00-points from its low. I smiled and thanked him again for "trying to get me in at the low" (his words), and politely refused. He asked me why and I said, "I never fight the tape."

He called me again this afternoon and said something like “I guess you were right. "Maybe I should call you for tips?" Well, that's not going to happen and I didn't fire him. After all, he really believed the mumbo-jumbo that his research department had given him. Maybe he won't be so quick to call a bottom next time? Or maybe he will, which is like the next examples.

I managed to read the Chicago Tribune’s business section a few times last week, probably the same days I spoke with my broker. I read the same thing he was saying; the market is oversold, it's undervalued because interest rates are so low, the consumer is fine, book values, balance sheets, blah-blah-blah. The insinuation, if not outright recommendation, was to buy last week. I did not take the paper's advice either.

And finally, we have the usual analysts on the financial shows and websites singing the same old song: "Buy it high buy it low, buy it all the time now bro." And it’s a broken record at that! A few weeks ago on a Fox Business show, a very intelligent analyst told us to buy XYZ stock at $31.00-share. The very next week it was already trading $11.00-LOWER, yet he recommended buying it again. His reasoning was something like, "the fundamentals are sound (yada-yada-yada) buy it anyhow." It was even lower the next week and he recommended buying it again.

This last point sums up my thoughts pretty well. On many shows you will see two analysts who take different views on individual stocks as well as the economy in general. These extremely bright individuals can come from the same graduate school, work in the same research department at a major bank, and have access to the exact same fundamental information – yet they can come to diametrically opposite conclusions. How can this be? If the fundamentals of a stock are what they are (simple numbers to be crunched) and the analysts were educated at the same Ivy League business school, they should come to the same conclusion such as 1 + 1 = 2…right? If not, then what is the point? These analysts come to different conclusions because of their interpretation of the exact same fundamental information. So again I wonder, what is the point?

If the market is not going up it seems like all the fundamental calculations, machinations, and massaging of the data seems to be little better than a coin flip, or worse in many cases: bad recommendations to buy during bear markets.

By refusing to be fooled by the fancy fundamental buzz words and persuasive arguments, I managed to avoid an 8% crack in the NASDAQ (my preferred sector) this week alone. The news is terrible and the TREND is DOWN. You can do it too folks. Although the analysts in print and on TV are very persuasive and intelligent, they cannot know when a stock or sector will end its trend. They are useless. They do not know more than you – you are in control of your financial destiny.

Real Time Trading Signals*for

Trade Date: 1/17/08

E-Mini S&P Trades*
(before fees and commissions):

0:03 ID VA Buy 40.75 = +.75, b/e

1:14 FT Sell 27.50 = -1.50 all

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 8:35am at 686.2 = b/e & b/e

2) Buy @ 9:15am at 690.1 = -.8, -.8, -.8

3) Buy @ 9:34am at 686.0 = +.5 & -1.2

4) Buy @ 10:33am at 673.6 = +.3 (1 lot)

5) Sell @ 10:36am at 674.0 = -1.1 (1 lot)

6) Buy @ 10:39am at 674.2 = -1.3 & -1.3

7) Sell @ 11:02am at 672.1 = -.5 & -1.3…-$830 here

8) Buy @ 11:12am at 672.5 = +.5 & -.5

9) Buy @ 11:22am at 671.3 = +1.0 & +5.0

10) Buy @ 11:31am at 676.6 = +1.0 (1 lot)

11) Buy @ 11:35am at 675.9 = +.5 & b/e

12) Buy @ 11:52am at 676.2 = +.5 & -1.3

13) Buy @ 12:37pm at 676.0 = +.5 & -1.2

14) Sell @ 12:56pm at 676.3 = +1.0 & +2.3

15) Sell @ 1:07pm at 675.3 = +.4 (1 lot)

16) Sell @ 1:15pm at 676.8 = +1.0 (1 lot)

17) Sell @ 1:38pm at 672.1 = +.5 (1 lot)…+$290 here

18) Sell @ 1:55pm at 670.7 = -1.4 & -1.4

19) Buy @ 2:21pm at 673.3 = +.5 & -.9

20) Buy @ 2:35pm at 673.2 = b/e (1 lot)…-$30.00


Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Log in for Larry's Daily Trading Tip each day too!