The “Core” CPI reported out at 0.1% higher than the expectations but the market was strong at the opening anyway. What was the media supposed to do??? Well, CNN Money online said something to the effect of the Market welcomes the end of uncertainty. Yes, the Fed now has to raise rates but now we can look beyond this month’s rate increase and focus on buying again, since the rate hike news is behind us, truly twisted logic. But, it works for the media on a difficult analysis day.
The bond market finally realized that inflation might actually be a problem and went down fairly hard. The bond market has held in there and actually advanced on all this media hype about the possibility of the Fed being Tough. We noticed that the drop doesn’t come close to eliminating the past few weeks of gains—we will continue watching for further developments in the bond market.
The stock market managed to have a decent up day after getting hammered for the past several sessions. Back on the first of June, the Dow closed at 11,260 and proceeded to drop seven of the next eight days closing at its lowest close in January at 10,706. If we were to look that closely at the global markets we would see pretty much the same thing around the world, two weeks of very weak markets. Even Wednesday’s advance was limited to very blue companies but we expect some expansion of those gains in the next few days. The market is now going to tease the bulls into staying in their positions, convincing them that the correction is over and it’s time for a good rally.
We just don’t think the rally will look very good and we will be interested in adding to our short positions. In the mean time, the precious metals have seemed to be bottoming in this area and we are really tempted to get on board. We should have done something about getting into PAAS the last couple of days but have not, you know how that work thing gets in the way. Plus, it’s difficult to dive into an asset that has lost about 40% of its value in the past ten weeks or so. I guess we’ll wait some more. If you must own something, the mining stocks are starting to dig in even as gold has dropped over the past few days.
Options expire this Friday (tomorrow) and we think the heavy volume this week is related to this event. For those who had written covered calls, this was a nice month. This expiration coincides with a nice little market bounce so we will see what happens on Monday.
The stock market is only going to try to correct the declines of the past six weeks, it can not (I know those are strong words—maybe we should say it Should not) get back in gear to the upside. The next couple of weeks will probably the last good time to unload stocks in preparation for the fall into the fall.
Be careful out there…
Dow Industrials: 10,816.92 +110.78