Quote Critique

Hypnotized by abject boredom, I picked up the 2009 Stock Traders Almanac in order to feel the joy of material acquisition. Needless to say, I'm not surprised to find it useless for trading, but the daily quotes are good bathroom reading. Thus, I will be plagiarizing each nugget of wisdom, and analyze its merit for my amusement.

"Major bottoms are usually made when analysts cut their earnings estimates and companies report earnings which are below expectations." -Edward Babbitt Jr. (Avatar Associates)

Wall Street is full of this contrarian rhetoric, so take it with a grain of salt. Clearly bottoms are made during times of overwhelming fear, but this sort of generalization can give the wrong impression to naive investors. Getting involved with a company that is slashing its earnings and being marked down by the Street is psychologically challenging, and often requires years of patience to prove fruitful.

Signs of the Times $SPX

I'm a huge fan of percentage/volatility charts, but due to their underwhelming popularity, they're confusing. Hopefully someone understands their value besides myself.

Although my NASDAQ indicator has gone bearish here, the SPX is holding on for dear life. There are fewer bullish stocks and volatility is rising, buyers beware.

The BXM/SPX spread has broken resistance and is running to the upper Bollinger, something to interpret as increasingly bearish.

The percentage of SPX stocks trading above their 50dma is falling and volatility is increasing. The environment is growing more difficult for investors.

SPX stocks making new highs are dwindling amidst the rising volatility, another reason to be careful if you're buying stocks.

The one glimmer of hope seems to be the rising number of NASDAQ stocks making new highs, but since this is based on a 10dma, I suspect it will turn down soon.

Investors should get defensive as traders look to short this weakening market. Real estate and financial companies could see another round of selling, and I'm keeping a close eye on the price of preferred shares via PFF or other ETF proxies. The energy sector looks weak as well, so trade what you see and not what the pundits spew.