(Many apologies to Elton John for my particular use of his popular song.)
The stock market showed signs of weakness during the day on Monday but failed to follow through on those signs. We have mentioned that the pattern in the market seems to be that of a clear down move but days like Monday through our thinking off a bit. Since Monday’s are normally strong days, the down day should mean something to the bearish camp but tonight we must again wait until we see some follow through to the downside.
The news this week is sparse so the new Fed Chairman’s upcoming appearance before Congress was hauled out as Monday’s excuse for weakness. Since Mr. Bernanke has not given us much in the way of public speaking since his induction to the hall of bankers’ fame, this week’s speech is somewhat of an unknown for the Street. The market expects the new Chairman to talk tough on inflation but to say that the end of rate hikes is near.
We think that will hurt the dollar again and probably will have some negative effect on the bond market as well. Meanwhile, the precious metals would benefit from such an outcome too. One thing to remember is that anything the new Chairman says will probably only affect the market for a short period of time after which the real work will be done.
The markets will try to recover on Tuesday morning after gaining some composure late in the day on Monday. Then, the market will do what it thinks best. Our momentum indicators are a little oversold now for the first time since the October lows. Don’t read this wrong, the October lows were much more oversold than the current time frame but we have turned away from the over bought position the market has been in since October.
To be a little clearer, the position of our momentum indicators represents a place where some buying could come in. We would remind you of what we have said recently about the Dow being the strong player. If we could see the Dow continue its strength without the broader indexes participating, that would be a great sign and opportunity. But, we have to Wait.
Until then, Be Careful out there…
Dow Industrials: 10,862.32 -26.73