Saturday, September 24, 2011

The Thursday/Monday Syndrome courtesy of Stock Trader's Almanac

As the market is in an extremely precarious place right now we felt it prudent to relay to you the details of the current setup for the old Thursday/Monday Syndrome.

With a penchant for history, a rapier wit and a refreshing sense of humor here’s how the always salient Art Cashin, Director of Floor Operations for UBS Financial Services and a regular markets commentator on CNBC, described this ominous possibility in his daily comments today:

“The Thursday/Monday Syndrome - We had suggested yesterday that we should probably explore the history of what old fogey traders refer to as the Thursday/Monday syndrome. While it would be pretensions to say that was prophetic, it was, to say the least serendipitous, for yesterday’s action looked like the perfect first step in a Thursday/Monday setup.

“We had intended to give you a more thorough history of the syndrome with lots of analytical examples starting with the classic one - October 1929. Unfortunately, events are moving too fast this week, so we have neither the time nor space to wax poetic on the topic. So, you will just have to rely on my recollections of 50 years of watching markets and hundreds of nights studying market history.

“The classic Thursday/Monday syndrome starts with the kind of action we saw yesterday. The markets open under pressure and selling accelerates in swelling volume. By early afternoon, there is a virtual stampede of selling. Then, later in the session, stocks stabilize a bit based on some reassurance. On Thursday, October 23, 1929, that reassurance came in the form of Richard Whitney bidding “205 for 10,000 steel” on behalf of the bankers rescue pool. (Read a terrific account in the chapter “The Crash” in Fredrick Lewis Allen’s marvelous and essential “Only Yesterday”.)

“The action on Friday (and Saturday in the case of 1929) is uneven, often ending choppily steady or somewhat weaker.

“Then on Monday, the trapdoor opens with liquidation and margin calls bringing tsunamis of selling.

“Is that what’s going to happen? Who knows? If it were that easy, kindergarten kids could do this. But chance favors the prepared mind. Old fogeys will guard against undue risk and exposure. Some may even get out a special shopping list. They will set their basket right, put in silly bids and hope some panicky soul throws a bargain in. Recall the story of the floor messenger boy, who, in 1929, according to legend, bought White Sewing Machine with his silly bid of one dollar when all other bids canceled.

“One final note on the syndrome. Not infrequently, the Monday massacre spills over into Tuesday morning - a capitulation bottom in mid-morning resulting in a massive reversal to the upside.

“Will this follow the pattern? It’s always a long shot, but we thought you should at least know the history of the pattern. Grace under pressure, Grasshopper. Grace under pressure.”

Long Gold Window Opens

One corner of the market that was clearly in a liquidation phase today was gold with its $101.70 per ounce price decline today. Recent declines since the formation of an island reversal on September 7, have knocked gold down into the price range (GLD: $155-165) that we were looking for in order to establish a new long gold position just at gold’s seasonally favorable period begins.

You can use positive technical indicator readings to begin to accumulate GLD.