Monday's Little Rally

Market Action:
As the market opened on Monday, the traders seemed somewhat undecided on which way to go.  When everything was said and done the broader market ended up on the day.  Such is the case on Monday.  

The news on NEW (that would be New Century Financial) had some negative drag on some larger stocks involved in the subprime mortgage market but, even though the NYSE failed to open NEW for trading, those stocks managed to trade higher for the most part.  (Off the exchange, trading in NEW cut the price nearly in half from Friday’s close.)  That didn’t stop the tech rally which got going right away, although it stalled late in the day.

Opinion/Analysis:
The stock market seems to be continuing to trace out a corrective move allowing more of the first wave down to be retraced.  This eventuality could get the Dow back up to that 12,500 level we have mentioned for the past two weeks.  That move alone could completely erase the 400+ point drubbing the Dow experienced just two weeks ago.

The market has given every indication so far that it intends to go lower unlike so many on Wall Street would like you to believe.  The most notable characteristic is the volume on the NYSE.  As the Dow was dropping a couple of weeks ago, the volume was over, or at least near, 2 billion shares almost every day.  Since we started to move back up, the volume has dwindled such that the last two days trading has been less than 1.5 billion shares.

Another indication is our momentum indicators that show the market is easing the oversold condition it is in by time rather than price.  What we mean is that prices are not moving up very much but the time since the drop is the main ingredient in helping momentum stabilize.  

Our assessment is that the market is moving a little higher from here and then we will finally see some real selling pressure.  The move is just ahead and the Ides of March, that would be Thursday for those of you who are still trying to get over the new daylight savings time, looks like a good day for such a thing.  That doesn’t give us much time to put on a couple more trades…

Our Moves:
Well, we might have acted a bit too early on Friday but we only picked up part of our position anyway so there is still some powder dry for selling into some strength this week.  We were not surprised by the market on Monday due to the lack of downward thrust on Friday but we do wish we could have exited our nice profitable position on Friday.  Monday it’s sitting with a minor loss.  (Don’t forget, the options plays are just for the fun of it mostly.  The main part of our assets is sitting in leveraged short positions.)


Dow Industrials:  12,318.62  +42.30
VIX: 13.99
HUI:  331.62
QQQQ:  43.21
QQQRR:  1.73 bid  (guess we should have taken that 35 cents)
RYVNX:   17.41
RYAIX:  21.79
RYCWX:  36.61
TLT:  89.75
BEGBX:  13.85