Tuesday, October 10, 2006

Epic Times for Bullishness

Tuesday the stock market mostly tread water with a little back and forth motion on a somewhat better volume, although not much better.  We note that the Dow surpassed last Thursday’s closing high by a whopping 0.48 cents.  Yippee.  That, along with the SP 500 closing 0.20 better, gives us cause to celebrate the new highs being made every day.  (Don’t you love sarcasm once in a while?)

With our analysis showing a slowing in the upward momentum and the prices only slightly higher, the market certainly looks poised for a bit of a drop very soon.  We are coming into the middle of the month here and the bullish time of the month is over for a few weeks.  There are some possible flaws in that thinking, like options expiration is not for another week, but for the most part our indicators are rolling over tonight.  

The bullishness is thick everywhere and we the contrarians feed on this optimism.  The market can not go to the moon and we can’t believe the bulls can be satisfied every single trading day.  Our theory has been that the housing market deterioration would take the stock market down with it has been slow to take hold.  Since the Dow made a new high today, you could say that it has been largely ignored.  

The housing market is still garnering some attention and we will continue to follow the industry over the coming months to see just how weakness there can and will run the stock market down.  However, in light of the current stock market environment, we are once again compelled to rethink our positioning, as we do most every day.  

We have seen how little the news affects the stock market of late and we know that the market does what it wants to when it wants to.  This brings us to the point.  The news associated with the market can only modestly affect the market.  Trading is the big thing that we need to watch.  The market can do what ever it likes on any given day but we try to focus on the underlying technical picture along with the fundamental story that makes sense.  To us the market has a lot more to say about what it’s going to do as opposed to what the media would like to think.

Every day we write about what the market is trying to say, sometimes we feel it’s an incredible foreign language.  On other days we think we have a pretty good idea of what’s going on.  For the last several weeks, this market has gone up regardless of what the underlying “news” is saying.  

The biggest news we can see is that the Fed is done raising rates, no matter what they say in the media.  Their tough inflation talk is due to one thing and one thing only, power over the markets.  What the Fed doesn’t yet realize is that it has lost its power.  The market has decided the Fed will not raise rates again and that the next move will be down sometime in early 2007 according to the futures.  This is a powerful stock market aphrodisiac and bullishness is the result.  We have never thought the baby step interest rate increases were very good but the timing of their pause has put us in an up trend in bullishness.  When will it end?  Well, we don’t think there will be much time to wait.  We are in an epic period of time and all of us will have front row seats to the coming rout.

Dow Industrials:  11,867.17  +9.36  
VIX: 11.52
QQQQ:  41.62
RYVNX:   18.85
RYAIX:  22.57
RYCWX:  38.51
TLT:  87.81
BEGBX:  13.48

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