Saturday, October 30, 2010

Market comments for the week

I did not write much this week and you might be wondering why. Some thought because the market hasn't gone down that I didn't want to post but they would have been wrong with that assumption. The real reason was that there wasn't any real news or market change to post. A week ago on Oct. 22nd, the Dow closed at 11,132 and the S&P500 closed at 1183. Yesterday, the Dow closed at 11,118 and the S&P500 closed at 1183 again. You see you could have been on vacation and not missed a thing.

Let's take a look at the charts of the Dow and S&P500 below. You will see clearly we went nowhere and it appears one of two things are happening. The Bull's story goes something like this: We are building a firm base here to go higher after the election. The Bear's story on the other hand goes like this: We are hitting strong resistance at these levels and are unable to break above them. But after the election when it is obvious as to the results, the market will drop on the news (Buy on the rumor and Sell on the news). You can see the horizontal resistance lines in both charts. To me the 200 day averages will be key going forward if there is any correction. If we break below them, the markets will have a meaningful correction. Without a break below that level, the market manipulators are still smoking something because this rally is not warranted in this economy.

I am in the camp of selling on the news and I'll tell you why. This election cycle is no mystery. The Democrats will lose the House but it won't be a complete wipeout of 100 seats, but more like 55, and the Senate will remain in Democratic hands with a slim majority. All the surveys point to this outcome, so the bets have been made and the wager will be collected after it is official on Wednesday. So, no real news yet to move the market this past week. Next week will be a different story as market direction may be more clear. Personally I have been waiting for a major correction so long now I am almost getting tired of saying it. This has been a long extensive run up in the Bear market rally.

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