Buy the Rumor, Sell the News ~ The Risk Averse Alert

Wednesday, January 28, 2009

Buy the Rumor, Sell the News

Monday's giveback still bugs me. Am I making too much of weakness displayed? Or was it instead fitting in its place on the road to melt-up?

There's something curious about Liesman's scoop last night on the "Bad Bank." Rupert apparently was not in on the story. Hours after the "Dead-Head Economist" broke the story on CNBC, not one word of it appeared in the Journal.

Was Liesman doing the work of a soldier? The boss tells you to push a button, you push a button. Is that what is was?

All I know is A-list politicians do not speak openly about the banking system's insolvency every day of the week.

Melt-up scenarios — thinking strictly in terms of a manufactured affair — run through my head. Buy the rumor, sell the news ... is this possibly one of those moments?


Two things to gain from the differential between new 52-week highs and lows on the NYSE...

First, it offers evidence there are fewer willing sellers to help the short side of the trade. Last week's low in the NYSE Composite reached slightly lower than early December's low. Yet the NYSE High-Low differential diverged. That's a positive.

Furthermore, November's bottom in the NYSE Composite was not much lower than last week's. Yet issues hitting new 52-week lows presently remain relatively few.

Likewise, if something more negative were still forthcoming, then NYSE new highs and lows might have broken down in a fashion similar to early-June '08. Nothing remotely close to this has happened, though.

Still, keep an eye on this. Like I said, Monday's giveback remains troublesome. Although there was much technical good accompanying today's trade, all reason to project continued strength can be challenged by what passes during any given day...

Fast Money
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