Monday, September 03, 2007

Bush and Bernanke, One Two Punch

This evening starts the beginning of trading in the month of September. The world markets were mostly open on our holiday and most were up probably in celebration of Monday or something. We would like to step back to Friday and remember what was going on back then.

As we opened for trading, there was quite a buzz going on about the big announcements from Bush and Bernanke. Bernanke was in Jackson Hole, WY giving a speech on the history of the housing market. The market had its ears glued to the news on what he might say about possible interest rate moves or some other “bullish” comments. Meanwhile, Bush was talking about what the Federal government might do to help the poor homeowners who might be losing their homes.

As we see it, the words they spoke are important to the world but we are here to talk about how the market took the news. The anticipation was pretty high and the buyers couldn’t wait until the market opened to express their dollars on the market. The Dow opened up about 125 points and, while it traded higher and lower than that, it went out at about the same level up 119. The other major indexes also ended the day near where they started, all up of course but not to a large degree.

In fact, the White House and the Fed combined their two shots at the market on the same day and managed only 119 Dow points. We find this fascinating because the market is now in an overbought state and can’t rally even on these terms. We think the fact that the market is overbought has more sway then the directives from these two high profile individuals. Now, can the market move higher from this overbought position? We look for a very trouble market in September.

Switching gears, we received our Barron’s this weekend with the front page headline that says “Introducing the Barron’s 400 Index”. We looked over the article discussing this New index and have another smile. This index, taken in retrospect, would have outstripped the major averages handily…Would have, if it would have been in existence.

We see a golden opportunity for us to challenge the theory that this index wants us to believe. The index could very well do better than the major averages in a downturn but we don’t think that’s what Barron’s had in mind. Even on the cover, they say “In essence, it picks AMERICA’S MOST PROMISING COMPANIES.” Their website within the online Barron’s website will be used to keep promising stocks coming into the index. We give them high marks for trying but we will wait for them to prove themselves in the upcoming market. Maybe when we are ready to buy stocks we could turn to their 400 stocks for picks. We’ll see.

So, from last Friday we see that the “Fed is ready to act” and the “Government will act”. That gives all of us great peace of mind for trading in September. Good luck to you.

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