There is no holy grail

This weekend I was talking to a buddy of mine who proudly proclaimed to have made money in this small cap stock. He told me he found out about the stock through his system of scanning for block trades. By his logic, heavy block trade activity is a signal that "something is brewing" with the company. This same friend by the way was trying to convince me about this "system" in 2006. I pointed out to him on Saturday, as I did 4 years ago, that it's far more likely he had success because of the bull market in stocks and not because he had discovered some holy grail...not to mention a pretty lame one in block trade activity. After he got crushed in 2008 I remember him clearly telling me in October of that year that was never going to touch another stock again. I figured he learned his lesson that his system is useless but I was wrong! It took about 2 years but he's back in the game and he's using the same flawed system of scanning for block trades! lol!

There is no Holy Grail folks. There’s no one indicator that works every time especially such a lame indicator as block trade activity.

What about this gap happy market? I don't recall seeing so many gap and run days in such a short span of time. How many is that now? 3 or 4 in the past 2 weeks? I realize not all gaps get filled. The ones that don't tend to be the ones that kick off a major rally or decline. For instance, the bull market run off the March 2009 lows began with a gap and run day. The rally off the July interim low in 2009 was kicked off with a gap and run day. Although this latest rally did kick off with a gap and run day multiple gap days in such a short period of time make it much more indicative of panic short covering as opposed to sustainable buying. What I think we are seeing now are multiple layers of short squeezes. The first group of shorts who pressing near the lows of 1040 got trapped by the first big gap and run day. Then a second group of bears tried shorting that gap figuring it would get filled and they too go caught fueling the fire and it goes on and on! Eventually we are going to run out of weak shorts and at the same time convince weak bulls (the technical types who buy on breakouts) to come join the party and then that's when the trap door is sprung and the house of cards collapses.

As I said in the comment section of my previous post. These kinds of rallies are what you see in bear markets and should have also said sideways markets. They will do whatever it takes to shake out enough bears and convince enough people to hop on before the trap door is sprung. So, that means, there's the potential for a temporary breakout of this trading range to the upside. That would certainly do the trick to punish the most amounts of people. As of now though the market is extremely ST overbought. One more rally like today would push it to maximum overbought on the oscillators however I believe the odds of 1-2 day pullback are very high right now. Today’s gap seems very, very likely to get filled in the near future regardless if this rally is the real deal or not.