Thursday, October 05, 2006


We are not surprised by the action in the market on Thursday. The big rally from Wednesday needed to be digested and the market is now expected to continue its rally. We’re not sure but the jobs’ report is supposed to be coming out on Friday morning so just about anything can happen.

Basically the market is “going up” and on any type of news there is. The price of oil can go up or down or sideways and the market can go up. The economy can be weak or showing strength or just plain tough to tell and the market thinks it’s a buy sign. This has been a difficult time to be bearish. So, we continue to beat our heads against the market.

For the first time in a long time (during this three month long rally), we see that the momentum indicators are overbought. This is not to say they can’t get more overbought, just to say that they are overbought. As you can see below, the volatility index, VIX, is still below 12. The combination of being overbought and low volatility implying high complacency on this rally should give way to at least a short term correction of the rally. Friday’s jobs’ report could provide the backdrop for a little volatility. We’ll see.

We are not big proponents that the market can be manipulated but we do believe that extra liquidity can be injected into the system. Usually extra money goes straight into the stock market and that’s what we think must be going on right now in front of the fall elections. We can not prove any of this but it sure feels like there is some extra money floating around to drive prices up the way they have the last few days. We do know that momentum tends to attract funds too so this market seems to be attracting funds in that fashion.

We just can’t believe the June/July lows in the Dow around 10,700 were supposed to be the lows of the year. But, here we are nearing 12,000 and those lows seem a distant memory. We will take a closer look at the information this weekend to see what we should be doing. Maybe the jobs’ report will give us some insight into the ways of this bull. Whatever we can do to make some sense out of this nonsense would be a good thing. Have a great weekend.

Dow Industrials: 11,866.69 +16.08
VIX: 11.98
QQQQ: 41.50
RYVNX: 18.91
RYAIX: 22.60
RYCWX: 38.45
TLT: 89.20
BEGBX: 13.70

No comments: