Wednesday, January 03, 2007

Market on a Wild Ride to Start 2007

So much for a new format…The stock market spent the day in a wild trading frenzy and ended the day not much different than the way it began.  We need to focus our attention on the stock market with a few comments on the commodities later.  

As expected the Dow blasted off to a quick 90 points right off the bell and after a quick pullback jumped up again such that one hour into the trading day it was up 115 points or so.  From there the Dow traded in a quiet 20 point range for a couple of hours but it started to lose a little steam going into the lunch hour.  

During the trading from around noon CST until about one o’clock CST, the Dow dropped about 50 points.  Right about then the Fed minutes were released for their December meeting which indicated some slowing in the economy but saying that inflation was still a key threat.  The market took this moment to accelerate the selloff that had started about an hour earlier.  From one o’clock CST to two o’clock CST, the Dow fell over 125 points putting it down about 60 points on the day.  From there, the Dow managed to bounce into the close and rallied about 75 points to close up 11 points on the day.

What a day!!!  When we look at the chart for the day it almost looks like a spring board diver with a giant leap, a few twists and turns, then falling into the pool and, after hitting the bottom of the pool, pushing off the bottom to resurface for the applause.

We had mentioned that the Dow was a good candidate for a new high going into the new year.  The other indexes seem fairly far from their recent highs but those seemed attainable as well.  As the market opened on Wednesday, the Dow sliced right to a new intra-day high by trading up to 12,580.  As you know, that number quickly faded and the Dow ended at 12,474, still below the all time closing high set just last week at 12,510.  

The other indexes seem to be where the real story is being told.  The indexes we follow here are the Dow, the SP500, the two NASDAQ indexes Comp and 100 and the Russell 2000.  The Russell 2000 has been the leader of this market rally for the last several years but it failed to best its high set in early December.  The SP500 failed to top its high set in the middle of December and the NASDAQ indexes stayed well below the highs set in November and December.  These are serious intra-day non-confirmations that will not be ignored for much longer.

Wednesday’s trading volume was above 2 billion shares on the NYSE and the result was slightly more advancers than decliners but advancing volume was edged out by declining volume.  Had you looked at the prices and volume about an hour into the day you would have seen a much different picture but that is in the past.

We look for much the same type of trading in the next few days as the market tries to go higher but fails in its attempt to make significant headway.  This will lead to a change in the way the traders view the market.  Right now there is so much verbal bullishness where ever you look, except if you look at the VIX.  The VIX has now started to move up and we watch it carefully every day, published daily below.

Stocks in the news were HD (Home Depot) who fired their CEO and gave him over $210 million to leave, rough duty.  The stock jumped on that news and, since HD is part of the Dow, drove up the Dow in the early going.  Wal-Mart (WMD) also jumped on some less than spectacular increases in sales.  Both of these stocks helped the Dow run up to that 115 points start.  

The stock we mentioned here last night, Lennar (LEN), was roughed up a little on Wednesday even as the market jumped at the opening.  Other homebuilders did fell some pain as well.  Given all of the news, bonds were up slightly.

Getting back to commodities for a brief moment, we noticed that part of the jump in the Dow came from a drop in the price of oil.  By the end of the trading day, oil had dropped nearly 4.5 percent taking gold and silver down with it.  Gold was down about $10 and silver about 25 cents.  This pushed the HUI, our gold mining index, down over 13 points, more than the drop in gold and very bearish indeed.  There could be more downside to come.  We watch and wait patiently, well not very patiently, for an entry point.

Welcome back to a new year of trading—let’s make some money this year.

Dow Industrials:  12,474.52  +11.37
VIX: 12.04
QQQQ:  43.24
RYVNX:   17.18
RYAIX:  21.52
RYCWX:  35.33
TLT:  89.07
BEGBX:  13.75

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