Top Line: Lots of negativity on Friday did not produce the forecast stock market collapse. To us, that was pretty bullish news...but Friday's late trade served to cloud our optimism.
With the futures down limit on Friday morning, about 5% for non-trading hours, the stock market looked like it was headed to the abyss. For whatever reason, when the Real trading opened, there wasn't as much selling as feared. Yes, the market was down but there was a collective sigh of relief when the market didn't open down 1000 points.
The trading at the bell was overwhelmingly negative but was the low of the day. From those opening trades, in the major indexes, the market rallied strongly for a couple of hours at which time a two hour selloff occurred. Someone has mentioned that the selloffs are most intense at the beginning of the day and over lunch time because that's when the public normally trades. They are trying to get out of their positions and normally trade at these times. Who knows, he might be right.
The point is that we shouldn't be doing what the public is doing. The media has been so negative on the stock market over the past month and may have actually persuaded the public to sell some of their holdings. The market has collapsed this year going into October. Now, they want to sell???
We don't have anything in the way of solid analysis this evening. The weekend has been busy with little time to prepare for a good post.
For those of you who are waiting for a response from us, we will try to get something out in the next day or two.
For now, we see the market is trying to hold on this evening.
As for Friday's close, the Dow dropped 150 points in just a few minutes to close out the session setting us up for a potentially difficult Monday opening. Tonight there is some tentativeness as the Asian markets open but there is only a little downside pressure in the US futures. We'll have to wait and see how it opens on Monday.
In any event, a violent rally should be happening very soon due to the great sales job the market has done for the past few weeks. This week brings the Fed's FOMC meeting which should give us another 50bps drop in the fed funds rate. Then there is the end of the month and the election...all of which are normally bullish.
We'll be back tomorrow for a bit more substance...