With the announcement this week of further liquidity being pumped into the market, “Don't Fight the Fed” is the name of the game, but what are the rules? It's been noted recently on Bespoke which stocks are currently “en vogue” and this is also echoed on StockBee. This can be quickly verified by sorting the Russell 2000 by price percent change 5 days. The index returned 10% this week but the leaders are for the most part junk and bottom fishing candidates. Perhaps these improbable candidates will indeed be the next wave of leadership.
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| Russel 2000 5 Day Price Percent Change |
This action this week reminded me of a paragraph in Trade Like an O'Neil Disciple:
The year 2009 was what William O'Neil himself called the most challenging year of his career... It was a year led by junk-off-the-bottom(JOB) stocks, while the more quality names often floundered. Many technical indicators that had worked for many years stopped working... 2009 was the year of the Fed “funny money” market manipulations as the Federal Reserve, in concert with central banks around the globe, injected huge amounts of liquidity into the financial system... pg. 237
Coming into the close of 2011, the Russell is down 1.09% from 12/01/10. On a weekly basis there have been wild gyrations, but smooth the perspective through time and the index has barely budged. This has been a central theme through a year in which the index has been bisected with an upper and lower range where fast and large moves to the up and down have been the norm. Although I'm coming into this week cautiously bullish, I'm not exactly eager to begin entering positions as I have the same sensation I get when I'm in a casino where the house always wins.
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