Dear Subscriber,
Financials led Friday’s bullish continuation into the holiday weekend. However, that added extension strengthened our bearish outlook for Tuesday and we now also have a “big-move ahead” alert on the dashboard as well. I started to build a small short-position at the close on Friday, and may add to it if we can get intraday confirmation tomorrow — I don’t want to be early here and I don’t wish this short-term signal to be confused with my intermediate-term outlook (note my weekend comments). Indeed, note also how the rotation model has again gone on an equities “buy.” The last signal was whipped and this model has been flat for some time. Eventually the market status will lock in for an extended run — which way will it be?
Friday presented us with mixed economic news. In my mind, a primary factor behind last week’s move was more weighted towards conciliatory talk about current tax rate preservation. Tax rates play a significant role in the calculus of discount rates for future cash flows/ price earnings ratios. If these stirrings firm, the rally seen thus far will be a drop in the bucket. If they falter…. Keep a close eye on developments here.
Monday’s trade was strong overseas, but early Tuesday performance overseas is mixed with the Nikkei headed lower.
Tonight’s File Link
Very truly yours,
Jeff Pietsch
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Guest Contributor: “Mr. Ice”
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Just a few days ago, we had bond yields crashing as traders fretted over the dimming economic outlook. At lunch today, I was asked by a co-worker that if we are going into a double-dip recession and a couple of days ago another co-worker liquidated her entire trading account to cash. We probably just had too much negative sentiment and majority of the bad news was priced in.
That said the S&P500 rallied 5% in 3 days and are pushing overbought. The $TRIN is overbought and $VIX is at recent support close to 20. We will probably have some holiday hangover and a pullback early next week. But a sudden and rapid three day rally probably will create a supply of buyers who want to buy a pullback and could create a upside bias for the next couple of weeks. I do note that the sentiment on the internet had swung fast to the bullish side even though most are expecting a small pullback to add longs.
As mentioned by Jeff several times in the chat room. The imminent decisions about the Bush tax cuts extension will likely be an important news driver going forward. Next week will be light on economic and earnings. The major items are beige book and jobless claims. Have a nice weekend.
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