Thursday, June 29, 2006

Rate Hike is Bullish?

The stock market staged an impressive rally on Thursday, the day of the Fed’s potential final bump in interest rates.  As we saw on Wednesday, the market had found some support and on Thursday, the market came out like gangbusters, with the Dow up 50 right at the bell.  The rest of the morning was spent just waiting for the inevitable rate hike, with just the amount and the announcement in question.  In our post yesterday, we said we would be bullish from about 1:15 CDT but the market couldn’t wait until then.  When the announcement finally came, the market just exploded, with the Dow popping 100 points in about three minutes.  I guess all of our readers took our advice and purchased stock right at 1:15 CDT.  

The pattern that this market has left us with is certainly open to interpretation but the three wave downward move seems to leave open the possibility of another leg up to new highs in the Dow.  This same pattern is not evident in the other indexes we follow, except maybe the Russell 2000.  So, at the current time the market is sending a mixed message that we interpret as giving some leeway on the upside for the Dow.  This is the type of thing that we did not want to happen but with the Dow making a run at the old highs and the broader markets failing to best their recent highs, which seems typical at the end of a move.  If the Dow would make a new all time high, there is no possible way that the NASDAQ could even get close to its old highs.  At this point we must wait and see.  With Friday being the end of the month and the beginning of a good holiday weekend, there will be ample time for the market to digest Thursday’s rally and what it means for the near term trading.  

One of the things that looks a little suspect about Thursday’s rally is the volume figures, not as high as you would want given the type of move we saw.  The headlines will make it seem that we are approaching Nirvana to the public.  They will be able to rest a little easier knowing the “worst is now behind us”.  This is called complacency and will be rewarded with poor returns longer term but in the short term, they are going to be happy.

We feel that this rally is the Last rally and, where ever this ends, we plan to put the rest of our funds to work on the downside.  Right now, we need to be patient and cautious.  At any time the broader market could go the other way and leave the Dow trading higher.  

[Editor’s note:  With the holiday weekend coming up, there will be No Update posting until Wednesday evening.  We know you will miss the Updates but we will be back on the evening of July 5th.]

In the meantime, Be careful out there… and have a great and safe Fourth of July holiday.  

Dow Industrials:  11,190.80  +217.24
RYVNX:   21.23
RYAIX:  23.70
TLT:  83.51
BEGBX:  13.32

1 comment:

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ETF & Stock Trader Robert
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