Wednesday, July 19, 2006

Impressive Rally

The stock market staged an impressive rally on Wednesday with the New Fed Chairman as the lead cheerleader.  The Chairman said that the economy is cooling, hooray hooray, oh wait a minute, and that should cool inflation, now, hooray hooray.  This speech was just after the CPI numbers were released showing a bit higher inflation than the market wanted to see.  The housing starts were announced about the same time and they were weaker than expected so the market was somewhat confused.  It did enjoy the Fed Chairman’s speech and was off to the races after that.  

We, of course, were happy to be out of our short position for today’s rally, but the Dow was the out performer today up 1.96%, not the NASDAQ (up 1.83%) or the SP500 (up 1.86%).  We follow the NASDAQ 100 (up only1.24% most likely due to YHOO which was down 7% by itself) which was not up nearly as much as those three.  

Wednesday’s rally certainly came out of the blue, big blue, with IBM leading the charge a bit.  But seriously, this rally was big in the Dow and now we need to wonder how far this can go.  With options expiring this week, it is little wonder that the market is up, too many people caught on the wrong side of their options trades.  In order to make up for that, they buy stocks.  

Again, we need to focus on the near term of the market.  We think this rally could carry until early August at which time we will be all over the short side again.  We don’t know how much room we have to allow for the rally but a 200 point start is pretty strong.  We will keep our eyes on it for further clues as to when to sell.  The volume was not particularly strong given the 200 points so maybe the Dow got a little ahead of itself.

This is the rally that is being caused by the Fed stopping its rate hikes.  The dollar got hit hard and precious metals bounced.  Bonds were strong and completely erased Tuesday’s losses.

We’ll be back tomorrow night.    

Dow Industrials:  11,011.42  +212.19
RYVNX:   24.06
RYAIX:  25.31
TLT:  85.24
BEGBX:  13.36

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