Wednesday, November 04, 2009

Fed News Not Enough To Hold Gains

Top Line: The Fed's "news" brought its usual blip for the following half hour or so and then the market decided to go down. We expect that the rally for the past few days should be the relief rally that will lead to further declines.

You might have noticed over the past few days that the market just can't seem to hold. This phenomenon is part of the roll over. As the stock market has been so volatile and it still "feels" like it could go either way. The real story is that the market has gotten too overbought and the buyers don't have enough money to keep it moving up.

Trading the stock market is always a difficult task and there is always potential for losses. When the market opened today, the buyers were out due to some employment news from ADP. Then when the Fed made their announcements, the market was fairly volatile but after the volatility the market was higher than when the news hit. From there the market fell to negative, at least in some indexes, before ending about unchanged for the day, near the lows of the day. These types of things should scare the bulls and we do not believe they will hang around too long.

The trading today looked and felt like the right ending to the correction. We say correction because the latest drop from the highs from a couple of weeks ago. The only problem with this discussion is that the rally out of the lows seems a little short relative to the drop but that can be because the market is really ready to drop without much relief.

We are significantly bearish at the moment. The drag on the market is pretty strong. Every rally has trouble sticking and the sellers are ready.

The big news seems to be that gold hit a new high near $1100 today with the dollar falling sharply. The dollar has not dropped below its lows of last week but still could. These two assets are at the center of the debate of whether the stock market can move down or or not. We have said that gold could hit $1100 on this move but that would represent a short term high with a move back down to triple digits before another rally, if we get one.

Right now, we want to make sure that we remove ourselves from the downside risk that has risen quite a bit. If we see a "buying" opportunity we will present it to you. The possibility of a decline of over 10% is very high.


Anonymous said...

Thursday morning about an hour and a half into the trading day: We failed to mention two items in our post last night, GDX and CSCO. Gold has been trading at record highs while GDX is still underperforming. This is decidedly bearish for gold and GDX over the next month or so. GDX Leads gold, not the other way around. This morning GDX is barely moving at all while the market is blasting up. This is typical behavior, sharp moves in the opposite direction of the main trend. This time it could be short covering, most likely, or the last cash for those who are late to the stock party, but it seems there is a splash of CSCO, too.

As the market fell off its highs yesterday afternoon, it is possible there was some fear for the CSCO release after hours. When that failed to be "bad" news, as John Chambers seems to always be bullish, the market has come back this morning.

We would use this as an opportunity to position for the next move down. Right now the Dow is right at the 10K level so the bulls are breathing a sigh of relief. Take advantage of that.

Back Sunday evening.


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