We opened relatively strong this morning but lost the momentum soon thereafter. Profit-takers came in and we actually went red on the day for a bit. The afternoon saw some very boring action where many of us were fighting just to stay awake. As usual, the final hour was interesting and the markets ran up, making the day look stronger than it was.
That’s not to say the bulls didn’t have a good day, it was just nothing to get overly excited about contrary to the nice gains shown at the end of the day. The action today does not give reason to believe we are going to continue to run-up more. Instead, I expect us to establish a trading range at these levels for the time being. We must remember that the market has not lost its bearish sentiment because of two green days.
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The news hasn’t been too bad and actually, has been positive. The Obama administration may keep dividend and capital gains taxes low, giving reason to stay in equities. Oil inventories came in lower than expected, showing we still have demand. Retails sales, while not strong, are better than expected. We also expect a season of quality earnings reports.
However, the chart setups are still terrible. Support levels are weak and volume is many times too thin to benefit from. Fear is still embedded in this market and we have no reason to think the market is now fixed. The question is will we see another V-shaped rally on low volume? Since I believe the stimulus was a large factor in last year’s rally, I do not believe we will see another long rally as the stimulus has dried up.
All we can do is pay attention and follow the momentum, whichever way it takes us. Oil is favored again and another hurricane is around the corner, which should boost energy prices. Technology is still everyone’s friend as well, so I continue to look for setups in those sectors. Even in a downtrending market, we can find pockets of strength if we search hard enough. We just need to remember to take gains when we can and not be overly greedy looking for bigger gains. When we do that, we are likely to lose the gains or more.
As always, do your own homework to see if you agree. Have a good night and I’ll see you in the morning. Good luck out there.
Mike
No positions mentioned
