Holding Steady – Monday, October 25, 2010
The equity indexes continued to consolidate in a positive fashion with several stocks making large percentage moves typically related to EPS reports. Recent trading sessions have recorded large gap moves from key stocks NFLX, AAPL, GOOG, and BIDU. This has allowed the strong NASDAQ move to keep moving upward without much pullback. The markets remain in an uptrend and have not had a major correction since the rally began in early September.
There will be more EPS reports filter out but investors will become increasingly focused on the outcome of the November elections and the early November FOMC meeting. Also, there should be more analysis of the mortgage and housing crises as Bank of America has been sued to buy back $47 billion in home loans. Several groups have announced they will restart foreclosure after a temporary halt. Again, as we have stated numerous times in this letter it is difficult to envision a scenario of great improvement in the housing sector without an improvement in the employment situation.
Some equities are extended and should be short term traded only but many, especially semiconductor stocks appear ready to make fresh breakout attempts. This may be the tug of war headed into the typically positive seasonal period of November through April. Additionally, 2011 is the pre election year and historically the rally from the lows of year 2 in a presidential cycle (2010) and the highs in year 3 (2011) are substantial. We believe this pattern can play out again during this cycle but the key question becomes are the lows for 2010 in place already. Our belief is that yes likely they are in place. The market could still go through a quick 3-5% pullback at any time.
Past performance not indicative of future results. Futures trading involves substantial financial risk. Please consult your personal financial advisor before using this information for your own trading purposes.
