Weak First Trading Monday of 2007

Market Action:
For a Monday the stock market kicked off the opening with a little volatility that left the Dow down about 60 points after the first hour of trading.  From there the market managed to do its Monday thing and traded higher the rest of the day, with the Dow closing with a 25 point gain.

Opinion:
Looking at the Dow, it doesn’t seem to be leading to the upside.  In the first trading day of the year the Dow made an all time trading high and since then has done little or nothing to reinforce that high.  The Dow traded as high as 12,580 last Wednesday and then after the jobs’ report on Friday it managed to go up to about 12,510.  Monday morning it fell to a low of 12,340 before trading up to close at 12,423.  Of course, these are only slightly lower prices and the Dow could go zooming back above that 12,580, but for now at least, it seems that the path of least resistance is lower.

The natural buying power that most attribute to the first week of a new year seems to be weak this year.  From our perspective, the market has been showing signs of fatigue for a couple of months.  Upside momentum has been waning and the numbers bear that out.  Leadership no longer seems to exist with oil dropping, the oil stocks have been sinking along with it.  The leadership from the financials with helped push the Dow to new highs last week seems to be fading as well.

Our best indicator is the rampant bullishness that is accompanying this lackluster January.  We find it difficult to actually find someone willing to call a down year in the stock market.  Those bears have long been discredited and now the bull can stretch its legs and run…away.  If you were to stop paying any attention to the media types who report on the market and just start looking at the market, you would find some fascinating things, not all of the even close to bullish.

We will present some of these indicators over the next few weeks as we get ready for a pullback.  For now, we want to remind most of you that the market has failed to move up from the highs set over the past two months.  At the very least we should see a modest pullback setting up for another assault on the highs—which could fail again and most likely will.  At the most, the highs set over the past couple of months will hold and right now, we will see the market drop going into spring.  

Be careful out there.

Dow Industrials:  12,423.49  +25.48
VIX: 12.00
HUI:  314.79
QQQQ:  43.88
RYVNX:   16.67
RYAIX:  21.20
RYCWX:  35.64
TLT:  89.37
BEGBX:  13.64