Shaking the New Bears

Top Line: Well, that was a little more rally than what we would have liked but that's the way bear market rallies tend to be, Sharp and Violent. The NASDAQ has been slightly stronger than the blue chip indexes and, while we did switch to fully negative in our last post, we do like the action so that we can put the last of our funds to work.

The stock market does what it can to shake out the weak hands and Tuesday's rally brings that into clear focus. So what do you think? Did the news from Merrill Lynch (MER) that it was selling some assets for 20 cents on the dollar and that it was going to raise some capital, too, give you confidence in the company or the economy??? Or, how about the Case-Shiller home price index dropping 15.8% over the past year? Do you think that is bullish for stocks? And, do you feel confident about the new read on consumer confidence, the one that says it went up last month? What about the government taking over Fannie and Freddie paired up with a half trillion dollar budget deficit planned for the next fiscal year? This is the kind of day that the news just doesn't make much sense when put next to the stock market move. But wait, there was the news on the price of oil dropping $3 a barrel, could that be the trigger??? Somewhere in all of this the market decided it had to go up on Tuesday.

What does make sense is that the blue chips have sold off quite a bit recently and we had a snap back rally to shake the confidence of new bears. The dip below 11K was enough to create bears from thin air. The market is now in the process of testing their conviction to the short side. We seem to think the big picture is still pretty negative and the pattern in the stock prices is decidedly down.

The NASDAQ has been giving us some trouble and when the market moved down strongly on Monday we thought that the threat of higher prices there was severely reduced. With Tuesday's strong rally, there could still be a possibility of a little higher prices in the NASDAQ but with the overhead resistance on the blue chip indexes right above these prices, the NASDAQ probably can't move up much from here either.

What we mentioned a few posts ago was the jobs' report that is due out on Friday and how that might represent a good spot for the NASDAQ indexes to peak. We might have to drag that line out again this evening but we'll try not to mention it...not our best humor, we know.

We are in the period of time during the end of the month when we feel normal bullish tendencies in the market plus we have the jobs' report on Friday and next week we have the FOMC meeting to brighten the market mood. The Fed is in a difficult place right now but with oil easing and gold dropping a bit, the threat of rising inflation may seem to be fading in their minds. That may be enough for them to consider modifying their language in the announcement but the world still thinks that inflation is a problem. That train left the station a long time ago...now it's time for the deflation of the housing situation.

That will have to wait for tomorrow...

FSI: 81.03 (good up move but only about half of Monday's down move)