Not So Much Trouble Today

The stock market showed some strength today as we get September off to a good start for the bulls.  Today’s rally in the Dow pushed right up through the 200 day and 50 day SMA’s.  Last week we said that the market has been so flat recently that there really isn’t much movement in either direction but the drop below 10,500 could be meaningful.  Well, tonight we are back above that 10,500 and looking straight at the 10,600.

We have the late July, early August highs around 10,700 providing some overhead supply, resistance.  But, the key facts to look at for today are that this is a typical retracement of the down move we have seen since the mid-summer highs.  It’s based on low volume, at least today, and looks like an ending type move on the sheer price move of 141 points in the Dow.  These are headline, head turning numbers that the public sees in conjunction with the energy prices going down a bit.  Today’s headline on CNN was “A Well-Oiled Rally” just to give you an example.

We said last week that we wanted to wait until this week to get short and we like a day like today to do just that.  There are no shortages of “reasons” for the market to keep going up so we ask “How can it?”  We still engage in contrary thinking in case you were wondering.

The conclusion the market has come to is that Katrina and falling energy prices allow or force the Fed to stop raising interest rates.  The bond market didn’t agree today because it dropped, with interest rates moving up somewhat.  Don’t forget that those early June highs in the bond market are still providing some strong resistance to bonds.  

Precious metals actually like an environment of low or negative real interest rates.  This is the situation that could present itself if the Fed does stop raising rates and inflation continues to climb.  So, you have some pretty good choices, either buy mining stocks or silver or sell stocks (Short—by utilizing the RYDEX funds where possible).

We look for the stock market to “hit the wall” tomorrow and maybe put up some stronger volume as supply again meets demand.

Dow Industrials:  10,589.24    +141.87    (10,500  boring)
BGEIX:  11.83