Top Line: The stock market seems ready to proceed up for the next few weeks. After dropping for the past six weeks, the market has effectively increased the bearish sentiment. This bearish sentiment will not be rewarded in the short run and we think the market will advance. In case you are wondering about our "change of heart", we do not think this up move will last very long and it will be followed by another crushing down move.
After the long weekend, we can hardly remember what happened last week but we know the jobs' report was pretty much in line, the ECB (as we stated in our Thursday edit) raised interest rates by 25bps, and NVDA got hit without much damage to the rest of the market. These news bites did not hurt the dollar which rallied about a percent during the day, nor did the stock market take a dive with the Dow ending up about 70 points on the shortened trading day.
The blueprint we are following is that the stock market will have one of its normal bear market rallies. Normal bear market rallies can be recognized by their violence, meaning price moves are large. Unfortunately, the trend remains down and eventually the market goes down. It's just this type of action that gives the bulls another reason to hold on to their stocks.
Speaking of the bulls, we wanted to briefly mention a couple of thoughts this evening on trading. "Corrections" are sharp and don't seem to let up except for those moonshots in the preceeding paragraph. The bulls think the market will always come back so there is no reason to trade out of the current situaion. Ok, we maybe would concede that the market has come back but we are looking at a protracted bear market, one that will change diehard bulls into bears. In the meantime, these violent rallies keep the "hope" alive. We don't see a real good buying opportunity for a couple of years but there will be some decent ones over the net six months.
FSI: 86.83 (uptick signals an up move to come)