After the weekend, the market had a rough go of it at the bell but then got off to its normal rally mode…Wait a minute, that’s not right. Over the last several months, the market has been able to shrug off many little early morning drops but not Monday. On Monday, the market made a steady down hill for most of the morning with the Dow being down about 150 around lunch time. From there the market found a trading range and closed near its noon lunch time lows.
You may have heard the news of “why” the market was down on Monday but I think the scary thing is that there really was no hard news for a drop like this. For us here at the Update, this is the way a turn down should look. It should get started modestly like last Friday after Thanksgiving and then drop hard for a day without any serious selling news.
Yes, the analysts were quick to point out that the dollar has been in a low volume drop over the past several trading days, Wal-Mart indicated a poor November including Black Friday (WMT was down 2.7% on Monday), and oil traded back above $60 a barrel. Analysts also said the drop “wasn’t surprising” due to the Dow’s near 15% run up since the beginning of the year. There was bullishness in some of their statements as they thought it possible that the dip would be temporary because of traders wanting to buy some stocks to “boost” their portfolios.
Well, the market does not really pay much attention to those of us who are making statements about it. It does whatever it wants to and we need to respect that. The past several months have been some of the most head scratching trading months ever. The bulls are just smiling every single day with no worries. Every time the market goes down just a smidgen, the buyers come back in and bid it up again…but not Monday.
The question of whether or not the market will continue down is now sitting out there for everyone in the world to wonder about. All of a sudden the market has a chance to drop and drop hard, right here and right now. The market can do whatever it wants to but we believe that the market needs to go down, maybe not on Tuesday and maybe not this week but Sometime soon.
OK, what is going on? We must now focus on what the market is doing. The news is only going to distort the picture the market is trying to paint. The main point will be how the market reacts to the various pieces of news. On Tuesday we get to see durable goods and existing home sales for October. There are some retail sales figures coming out and the November Conference Board consumer confidence report. We would now say that we should ignore the numbers for the most part and watch the market. We of course think the home sales are important for the long term but even those are not as important right now as how the market trades.
Most players should be “expecting” a rally on Tuesday so if one develops we should pay special attention to its strength. If one doesn’t develop and selling continues, there could be a very bad week on tap for the market. We believe that the current stock holders have some of the weakest hands for holding stocks. The minute the market looks like it wants to go down, there will be a dearth of buyers and sellers will swamp the market. Greed will turn to Fear very quickly. This event could have started on Monday, well, even last Friday.
Now, we know that we could be getting ahead of ourselves a bit but you can never be sure what is going to happen. The market is on a precarious peak and when it goes over the edge, there could/will be a major drop. The question is “Are you feelin’ lucky?” That’s the best Clint Eastwood line we could come up with on short notice. Seriously, the question is whether the market is going to continue going down right now or not. Do you want to keep your money on the table or in the bank?
Dow Industrials: 12,121.71 -158.46
VIX: 12.30 (15% jump)