Tuesday, May 27, 2008

Perfectly Dangerous Rally

Top Line: The stock market advanced, apparently due to the drop in oil prices. So, there you go, the market gives you a nice gift of a rally And XOM goes down along with oil. This is just the scenario that we envisioned in yesterday's post--we didn't connect the two but the market figured out that the two had to be connected. We are now expecting the market to have some trouble and then go down with a vengeance--timing is very soon.

The reason the Dow didn't go up as much as the NASDAQ is that there are some big oil companies in the Dow that failed to participate in the rally. But, the world is so much better off now that the price of oil has gone down $3 (yes, sarcasm is alive and well here at the Update). The market doesn't understand what is going on but that works to your advantage.

The position of the averages sets us up for a potential, as they say, non-linear move. That means that the market could drop and not in a rational fashion. A rally like we saw today (Tuesday) will not have any staying power based on where it will take us. There isn't enough for it to get up to challenge the drop we've had since last Monday when the Dow headed up to 13,100. Today's close was 12,548. That's a long ways from 13,100 especially after a day like today.

In fact the rally was shaped just like any corrective move, three waves with one up and then two down and then three up with the third looking a lot like the first. By the looks of that shape, we could see the turn down as early as tomorrow morning (Wednesday). This is a very dangerous look down.

We'll leave you with that because we want to focus on the market. News does Not matter at the moment. But, of course, we never think it does but it fills the time for the financial news media. Oh, and it creates good opportunities for us to take advantage of.

FSI: 93.52 (good sized up move but still will fail)

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