The stock market managed to do practically nothing on Monday as investors the world over are patiently waiting for the next celebratory move above 12,000 in the Dow. As we look at the day’s trading, the Dow made some slightly higher prices during the day while the volume again was light. There doesn’t seem to be much conviction about this rally. The market is getting tired and rightly so. Our momentum indicator is now well over bought and due for at least a correction.
We are a bit surprised by the lack of volume right here. We normally figure the stock market will find supply at some point, due to the higher prices, and that creates high volume days near the end of a move. The light volume is almost eerie. We’re not sure what to make of it, could mean that supply has not felt compelled to sell.
This could be an important week due to the news items as well as the options expiration on Friday. Tomorrow brings the PPI and Wednesday brings the CPI. Wednesday also brings the September housing starts and Thursday the leading economic indicators (LEI). We think the really big event is the options related trading that will happen this month. The broader market has gone to new relative highs and the options being in the money should create some volatility.
Here we are in the middle of October and we are starting to get the third quarter earnings reports. This time of the quarter can be important for the stock market especially if the news is different than Wall Street thinks, good or bad. As we generally say, it’s not the news but the reaction to the news that matters. This should be a very revealing week. We are aware that the news could still be acceptable to the market during this go around but if it’s not, then we could see some trouble.
Our position continues to be for you to hold cash and if you are long stocks to exit those positions in favor of cash. We see that rates across the curve are right around 5% giving you adequate return for your money as we wait for better opportunities. Right now we are watching the gold complex carefully for opportunities. Other than that, the market seems extremely overpriced and we recommend staying clear.
Dow Industrials: 11,980.60 +20.09