Bad News, the Dow is Up

The Dow seemed to be the leader of the party on Tuesday jumping 73 points.  CAT, BA (Boeing), and XOM (Exxon-Mobil) all sported more than a point move to aid in the Dow’s advance.  The problem is that the Dow and the SP500 are the new market leaders each eking out a new high for the move today.  I say this is a problem because when the big cap stocks are the leaders and the smaller stocks are not following, the market is in trouble.  Even the RUT (Russell 2000) is not making new highs and it has been the market leader for a while now.  The momentum indicators we follow turned over today rather than moving up.  We always say that the market can turn this type of indicator around but there are several large divergences that are noteworthy, especially the big cap up move.

In case you were wondering what all that was about, it means we have been given another sell signal by the market.

In the news today, the big three auto makers, GM, Ford, and Chrysler, announced declining sales in the month, with GM down 10.7%, Ford down 6.8%.  Chrysler sales were down 6.2% falling below Toyota for the first time in total sales.  The big headliner was that sales were down at the big three due to higher gas prices.  Well, that could be true but we continue to believe that there are sinister forces at work in the world of finance.  Ok, this isn’t a Sherlock Holmes story but we believe that the economy is showing signs of both higher interest rates and lower home prices.  

Meanwhile, the new Fed Head is already being criticized.  Bernanke has taken over the position vacated by the Maestro, big shoes to fill indeed.  The Fed doesn’t want to rock the boat called the stock market so it wants to make sure that everyone knows what it’s going to do at the next meeting.  Last week Bernanke said the Fed could pause even while inflation was rising.  We guess he thinks that it’s possible that the Fed has raised enough or close to enough and with the normal lag in the economy, they should just wait to make sure.  

Let’s be clear, the Fed is going to hike rates at its meeting next week, make no mistake about it.  The market is well aware of the Fed’s intentions for next week.  What the market wants is assurances that the Fed is done.  There is a good chance the Fed will be done next week but the Fed has two big problems, that being the dollar and the bond market.  The Fed can try to control short rates but the bond market controls longer rates and right now it is pushing rates up.  Meanwhile, the dollar seems to be dropping every day.

We encourage you to voice your comments in the comment section.  This Fed is about to become impotent with the dollar and the bond market taking over their job.  What do you think?  Does the Fed have a good idea what they are doing???

Be careful out there and don’t forget to “Sell in May and GO AWAY”.

Dow Industrials:  11,416.45  +73.16
RYVNX:   18.67
RYAIX:  22.10
TLT:  83.42
BEGBX:  13.37