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Tuesday, August 10, 2004
Good evening friends,
Market Recap
The long awaited rally finally came today with the Dow gaining +130 points, the NASDAQ gaining +34 points, and the S&P 500 tacking on a +13 point gain. On Sunday night, I mentioned I was expecting a rally in the market soon because the market had been over sold and a rally was due. All three of these indices closed at their respective highs of the day.
On the surface, this rally seems very good; after all, the Dow had a triple digit gain. I do not want to seem pessimistic, but take a look at the volume of these indexes today. The volume was less than average and not anywhere near the type of volume we need to see in order to believe the rally is for real. I mentioned Sunday that if a rally were to come this week, it would need to be accompanied by volume in order to make me a believer. The volume was not there today, and for many of the stocks that did well, a lack of volume was very evident. We did not rush to cover any shorts because of this low volume factor. Had there been greater volume, we may have been covering a few more positions.
Mr. Greenspark
The Feds decided to raise interest rates again by ¼ point, and for some crazy reason, this sparked a rally. With the terrible jobs number on Friday, I thought that the feds would think twice about raising rates, and if they did not raise rates, then I thought we may see a rally. But who would have thought the market would rally on news of an interest rate hike? As I looked at the intra day chart just before the announcement, it looked like the markets were getting ready to blast off. From the way the charts were setting up, it looked like we would not be getting the rate hike that had been priced in the market already. This would have been a recipe for an explosive rally. However, the fed did raise rates and much to my surprise, the market still rallied. The intra day chart told us the rally was coming, but I thought we would rally due to a surprise non-move by the fed rather than the announcement of the hike.
The Illogical Market Strikes Again
The market is amazing. The market will always surprise even the most seasoned of traders. There was absolutely no reason for the market to react the way it did today after the announcement. When rates rise, stocks usually fall. It is not good for stocks when interest rates are rising. The market was not logical today, but then again, when is it ever logical? Does the market ever do the expected?
The expected reaction would be selling when the announcement came. After all, the jobs report was lousy and Greenspan was raising rates after looking at the same job number you and I saw Friday. What is he thinking? I was not able to listen to his rationale behind the raise, but I wish I knew why. Even if I had listened, I am not sure I would have been able to understand him anyway.
The Bottom Line
The bottom line is that market is not out of the woods yet. All indices are below their respective 200 SMA's. The Dow and NASDAQ both have their 50 SMA's below their 200 SMA in a down ward slope. Oil prices are at record highs. The latest economic numbers have not been that great, especially the latest jobs report out last Friday. Tech spending is slowing to a crawl and inventories are back logged. Tech companies have been guiding lower. Retailer's earnings are predicted to miss because people are not spending money. All the signs are there that our economy is not getting any better and with the election up in the air; the market sure does not like that uncertainty.
With so many negative signs, I ask again, why were rates raised today? It makes no sense at all, but then again does the market make sense? Heck, with all this bad news, this illogical market just may keep going up. It could happen…but I highly doubt it. Even the market is not that crazy. It is smarter than all of us, it has drifted down for months, and it was forecasting this bad news well ahead of time.
The market may be illogical at times and very frustrating for many. The market may not always seem right, but it reminds me of my childhood memories of my father. I can recall my old man was a lot like the stock market at times. He may not have always been right but he was never wrong. Think about that for a minute. Whether he was right or wrong it did not matter, it was going to be his way anyway and I could do nothing about it. Likewise, whether we agree with the way the market acts or not does not matter to the market. The market may not always be right but it is never wrong.
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