Top Line: The strength in the market on Friday is setting us up for an even stronger selloff. The higher the prices go, the fewer people will believe that the market can go down and will act accordingly. When it's time to rush for the exits, they will be last ones out of the theater.
Friday's up move was the conclusion of a strong week for the market, particularly in the NASDAQ, with the NDX up about 7% from Monday's low to Friday's high. As the buyers, including short sellers who were covering their positions, concluded the week, they were feeling pretty confident that there was no chance for a selloff in the near future. As we see it, the complete lack of fear of a selloff has deteriorated to No fear at all.
We are going to sit back and see how the market plays out this week. This happens to be options' expiration week and should bring its own brand of volatility. As it stands this evening, we do not have anything new for you. Take a look at our position statement from our last post to find out what our targets are.
The dollar broke out on the upside and in the short run that had detrimental effect on the commodities like the primary ones we follow, gold and oil, but also for many others. Of course the media has convinced the new market participants that whenever oil goes down, the stock market should go up and up it went on Friday.
One article to share this evening only because we have been following CDS's for a few years now and want to keep track of these types of articles, this one again from Gretchen Morgenson of the NY Times.
FSI: 85.34 (Still below the July 17th level)
VXO: 21.88 -0.75 (heading up to 50)
SDS: 64.50 -2.74
QID: 40.42 -1.61 (it was a tough day for the bears)
Dow Industrials: 11,734.32 +302.89