Was the Market Down Tuesday?

Let’s get right to the action for Tuesday.  The stock market kept going down after Monday’s drop but the Dow will be announced to the world and it managed a positive close.  When the NASDAQ Comp is down over 17 points and the Dow is up about 22, the “market” was down.  One way to view it is that on the NYSE, the declining stocks were ahead of the advancing by about a three to one margin.  

The news indicated nothing very noteworthy but there has been some media attention to the interest rates going up.  The last few days, the bonds have taken a beating as you can see by looking at TLT in the last four posts.  The recognition of the inverted yield curve is still a little bit in the background but the possibility of higher rates seems to worry the market a little.  Of course on Tuesday the bonds were flat to up a little and oil prices dropped below $62, neither of which should cause a drop.

Our opinion is that the market has now shown its hand a little more.  In Elliot Wave Theory, we have seen a pretty good five wave move down in the last two or three days since last Friday’s peak.  Right now the market could stage a corrective rally or it could drop a little more before it starts its rally.  We prefer the rally now as we see the Friday jobs report again as a potential turning point.  With the market somewhat focused on interest rates and what might cause them to go up, a strong jobs report may actually be cause for selling stocks.  

Make no mistake about it, we do not envision higher interest rates coming from a strong economy.  We actually prefer the deflation theory primarily due to the inverted yield curve.  This type of thinking can start to be considered again and we will explore that theory over the next few months here in these posts.  If rates do rise more in the short run, that will improve the theory as it will hasten the demise of the housing market.  As you faithful readers know, the Wednesday Update believes the housing market will go down of its own choosing, not because mortgage rates will go up.  2006 seems like a very important year for housing and its baby sister, the economy.  

Caution is the watchword so Be very careful out there… If we get this rally into Friday’s jobs report that I’m hoping for, we expect it will not take out last Friday’s highs.  That being the case, we will probably be in a position to sell into this rally.  If by chance we do get a rally above last week’s peaks, then we will need to reassess but this is our current plan.

Dow Industrials:  10,980.69  +22.10
RYVNX:   18.92
RYAIX:  22.28
TLT:  88.61
BEGBX:  12.95