Wednesday, November 29, 2006

Perfect Rally

Before the market opened on Wednesday, we found out that the new revised GDP number was a little better than the first preliminary one we saw a few weeks back. The number improved from an initial reading of 1.6% to the latest 2.2%.

Predictably the stock market was doing its Happy Feet dance but we’re not really sure if it was due to the upward revision of the GDP. The reason we’re not sure is that the bond market was up on the opening too. That was the high for the bond market as it drifted lower all day (interest rates move up when bonds go down).

The Dow was up about 40 points at the bell and 90 minutes into the session it jumped up to about 90 points higher. From there we saw some flat to down trading going into the afternoon. The drop was more dramatic over in the NASDAQ indexes as the Comp almost got back to even after being up over 20 points early. The NDX actually dropped into negative territory. From there the market rallied into the close with the Dow up about 90 points on the day.

The other interesting news of the day was the new home sales and the Fed’s beige book, a sort of report card for the economy. New home sales were down slightly but the median price turned up for a change of pace. We think the report should not be construed as a positive sign for housing because there are many ways to keep the prices up like paying for upgrades but there is no up tick in the number of buyers.

Taking from the WSJ, the beige book indicated “US economic growth was mostly moderate in the early part of the fourth quarter, as consumer spending grew and labor markets remained tight despite further cooling of the housing market.” There it is, the economy is ok even though housing is cooling. So there is no reason to worry.

In our last post we mentioned that we thought the market would rally on Wednesday and we thought you might like to know why. Part of it was just the time of the month. Here we are with one trading day left this month and there just needed to be a rally. The other reason is that the market was looking to “correct” the decline experienced on Friday and Monday which brings us to…

Just a little tech talk this evening because we like to see Fibonacci relationships and sometimes they need to be pointed out to you. As we looked at the price drop we saw from last Friday to Tuesday’s open we thought it would be interesting to calculate the normal Fibonacci retracement level. Without going into a lot of detail, the prediction was for the NASDAQ Comp to return to 2438.50 and Wednesday’s high was 2436.61, pretty close so far. For the Dow, the calculation yields 12,251 (we rounded up because we thought you wouldn’t believe such a round number) and Wednesday’s high was 12,240, again quite close.

Dow Industrials: 12,226.73 +90.28
VIX: 10.83
QQQQ: 44.07
RYVNX: 17.02
RYAIX: 21.51
RYCWX: 36.61
TLT: 90.93
BEGBX: 14.20

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