Another Big Up Day

The stock market decided it liked the CPI numbers on Wednesday morning and that was all it took to pop the futures up just before the market opened.  From there, the market ground higher all day long going out on the highs of the day.  That makes two solid price moves back to back.  We still didn’t see the volume that should normally be associated with this kind of move.

We are trying to figure out just what the market is trying to do here.  Our portfolio has taken a significant hit in two days with this action but we still feel that the decline is coming.  Granted, we could have been out for the last two days but this would have been tough to call.  This week is options expiration and there may be some unwinding of positions going on with that and maybe there was a lot of short covering with sellers walking away for better prices later.  In any event, the price move has been impressive even though the underlying strength doesn’t appear to be there.  

You might ask what we are talking about because price moves are what all of our trading is about.  Well, the price moves should be associated with solid volume to confirm the greatness of the rally.  Plus, we said in last night’s post that the NASDAQ 100, NDX, had another opportunity to go to 1550 which it superceded on Wednesday.  That was for a 50% retracement of one of the prior declines.  With the entire price move in the past four days, the NDX has not reached back to the July highs.  

All of the buying taking place right now is based on the concept of a weak economy with low inflation.  So, the price moves this week are “news” related based on flawed thinking and will not stand up for long.  We say flawed thinking because the whole idea of a poor economy creating a good stock market doesn’t really seem appropriate.  The market participants are thinking that the Fed Can’t raise rates and that in itself will improve the economy.  We don’t think so.  What “Fed is done” rally is this, number 852?  How many times can the excuse to rally be that the Fed won’t raise rates???

The news out of the housing sector continues to get worse with July housing starts down another 2.5%.  There was some good news out of Hewlett Packard (HPQ) after the bell.  That stock had a nice pop in after hours trading.

We think that the options expiration related buying will be over and now will come the test of this up move.  The market is not as strong as the price moves indicate especially looking at the energy this move has taken.

Dow Industrials:  11,327.12  +96.86
QQQQ:  38.58
RYVNX:   21.68
RYAIX:  24.10
RYCWX:  41.75
TLT:  86.55
BEGBX:  13.65