Saturday, May 30, 2009

May 30th Stock market report: Week's summary and the week ahead

It was another painful week for Shorts, including yours truly. But we are now back where we were on May 18th when the Dow closed at 8,504 and the S&P 500 closed at 910. Yesterday the Dow closed at 8,500 and the S&P 500 closed at 919. The Nasdaq has done better as it closed on May 18th at 1732 and yesterday closed at 1,774, for a 2.4% gain. My ETF Triple Short play, TZA back on May 18th closed at $26.65 while yesterday it closed at $24.84, or a 6.8% loss, even though it reached a high yesterday of $26.63. A close friend of mine has been going along for this ride and has SDS. His SDS on May 18th closed at $57.76 and yesterday closed at $55.81, about a $2/share drop or 3.5%. Sorry friend! With these ETF's they can explode in a more volatile market, but we have not had the volatility, in either direction, for that explosion.

The VIX Index, which measures Volatility, closed yesterday at 28.92. This is well below the highs of the upper 30's to the 50's this Index showed back in April. The Put to Call ratio closed the week at 0.77 and so that measure also is pretty stable as well.

The only thing worthy of notice was yesterdays last hour of trading. The Dow was at 8,400 an hour before the close but then accelerated to its peak at the close of 8,504. Looking at the charts for companies like IBM, symbol IBM, McDonald's Corp, symbol MCD, Wells Fargo Bank, symbol WFC, Bank of America, symbol BAC, and lastly Ford Motor, symbol F, all had huge purchases in the last 15 minutes before the close. I suggest you look at your stocks on a minute by minute basis for 2 days and look at the spike in the last few minutes. To me this spike looked like a climax, and I use the word here deliberately to signify change in trend. Even the VIX dropped precipitously in the last 30 minutes. Therefore, I believe we are at a key turning point for the market. I have put several of these charts at the beginning of this post so you can see what I am referring to. The charts are 2 days of time and one minute intervals for the selected stocks mentioned above. Notice Volume spikes as well corresponding price spikes in the last few minutes.

If we reached a climax yesterday, then something is going to be different next week. I can not say whether the markets will decisively move down or up at this point, because there are no "tells" out there that I watch giving me the necessary direction but here are some facts. Gold closed yesterday up $19/ounce to $979. (I said watch Gold and said it was going past $955 when it was $869.) Oil has climbed back to $64/barrel. Silver has climbed to $15.75/ounce. Either the economy is getting better or inflation worries are here big time. Silver is up 75% since its low of $9/ounce in November. Gold is up 35% since that same time. If this turns out to be a major Bull rally, I will concede I was wrong to go Short with TZA. However, I could be just as right and the market is set to go down from here. The old adage "Sell in May" became a noted slogan for a reason. That reason may come to fruition.

My major emphasis has been to preserve capital on this site for the past few months. I said the rally was for real back when it turned up and I stated at that time many will not believe it. Well, for the past few weeks it has stalled between the low of 8,200 on the Dow and 8,600. I expect we will have a breakout now from Friday's action in the last 1/2 hour. Remember for every purchase yesterday there was a seller. They got the price they wanted for those sales as the tick went up but the buyers could be on the wrong side of that trade. Besides does anyone really believe that Consumers are going to be spending even if Consumer Confidence rose in May to 68.7 from 65.1 in April? To me the bigger news was that Chicago Purchasing Manages index went down from 40.1 in April to 34.9 in May. Time will tell. Stay tuned.

Tomorrow is the end of the month of May so if you have not yet voted during May in my Mini Poll of how long the recession will last please do. But please no double voting.

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