The Friday stock market did give us a nice reversal from the opening numbers and by noon there seemed to be a solid decline playing out. From there, the market managed to stage the normal rally and, even though it closed down, it closed fairly strong. With the possibility of any kind of news over the weekend, we were impressed with the staying power of the bulls going into the close.
The news seems to have switched to economic strength all of a sudden. The strong jobs report on Friday just slammed the bond market but the stock market managed to come out of the tailspin it was in the afternoon (the market seems to deal with all this bad interest rate news in a couple of hours). There seemed to be less talk of the Fed being able to lower rates anytime soon after that report was released.
The perception might be that since the Dow has been down on six straight days and Monday generally being a strong day of the week, the bulls just said let’s buy ‘em. We have been patiently waiting for the market to get done with this rally that started back in July and seems like it has lasted forever. Starting with the outside down day on Wednesday, we have started to see the technical picture switch to the bearish side. With the way the market traded on Friday, we are now waiting to see how trading plays out during this election week.
Normally, we don’t discuss politics here at the Update but we must discuss it a little in light of the current stock market move. We think that the basic reason the market has moved up over the past several months is the simple fact that the Fed has been taken out of the equation; but the other reason is the hotly contested elections. The stock market needs another reason to be bullish and for some reason this election is just the ticket. There is reason for many to believe that the market can rally due to the possible changes in the political landscape.
The foremost thought we have heard is the Gridlock position, that being the Democrats being able to improve their numbers in Washington enough to make it difficult for the Republicans to maintain control over partisan issues. The bulls maintain that if Gridlock were to occur, that would be good for the stock market. Well, we don’t have to agree or disagree with that position because what we Have seen is a big rally for the last several months anticipating something. Now, the media is telling us what that something is, Gridlock. The mere fact that the media has attached this meaning to the rally is one reason not to believe it, but the fact is that the market is still in overbought territory and now the election is Tuesday. Will the Reason for the rally materialize on Tuesday and will the market react positively to it? Let’s pay attention to what the market will say the next couple of days.
For more on this issue, the True Contrarian has described how the Gridlock will affect the dollar, that would be positively according to him, meaning gold will probably go down. Check out his new post at the link on the left.
Dow Industrials: 11,986.04 -32.50