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Sunday, December 12, 2004
Market Recap
A rather quiet day on Wall Street Friday as the major indices traded within a fairly tight range and the volume was below average. By the end of the session all three major indexes closed virtually flat. The Dow finished higher by +9 points, the NASDAQ was lower by less than -1 point, and the S&P was down –1 pt. With only two weekends of shopping left before Christmas, I think many investors were putting their money to work at the malls rather than in the markets and they took the afternoon off.
Despite the below average volume it was good to see the intraday bounce that took place on Thursday hold up and not be met by sellers on Friday. This is definitely good news for the bulls that this market just is not ready to give in to the sellers. It certainly looks like the dip on Thursday was a buying opportunity as most dips are in a bull market. I chose not to participate in Thursday's dip because the action on the SOX had me concerned that it was more than a shakeout. The good news is that we will all have plenty of opportunities to get back into our favorite stocks as the charts setup for their next advance.
One thing that did have me puzzled on Friday was oil. I was first surprised how oil prices dropped by over $2 after OPEC announced it was going to cut production to stabilize falling oil prices. Granted they only announced a cut of one million barrels per day, but it is still a bit strange that the exact opposite reaction they were hoping for occurred. I was also surprised how the market did not react much to this drop in prices. In the past we have seen the markets react more violently in the opposite direction of oil prices. Especially dramatic changes like we saw Friday. Was this a sign that the market no longer cares about the price of oil, or is the market anticipating a bounce back up? Only time will tell. I have a chart tonight of oil that will show that a short-term bounce in prices is likely.
Looking Ahead
Many of the stocks on our watch list are now sitting right at short-term support and are on the verge of either breaking up or down depending on what direction the market decides to go. Hopefully the direction is up and we can resume our uptrend after the consolidation we have seen the last week or so. Since locking in some nice gains last week, I have been very selective on my buys and my stops have been tight. I will continue to trade in this manner until there is an indication from the major indices that the Santa Claus rally is ready to continue. I am still very bullish on the markets but I will still be very cautious with my trades until I see more proof that we are at the beginning of a bull run and not at a double top. We will need to pay the most attention to the SOX index. The NASDAQ will have a very tough time breaking to new highs if the SOX index stays below its 200MA. As I mentioned on Thursday, please be very careful with stocks in the chip sector. Many companies in this sector are releasing conflicting reports, which is a recipe for a volatile sector.
I have added six new stocks to the bulletin. My backup watch list is also filling up again with stocks that are ready to replace those that are not moving on the bulletin. I also have some nice new additions to the OTC BB watch list for those of you that like to play OTC stocks.
It looks like we could be in for a very volatile week ahead on Wall Street. The major event of the week will be the FOMC meeting on Tuesday. Most people are expecting the Fed to raise short-term interest rates by another 1/4 point. The market has almost certainly priced in this expected rise in rates (assuming that we get one). So, as always, it will be the forward looking statements that chairman Greenspan mumbles about that the markets will be keying on. Along with the FOMC meeting on Tuesday there will be the normal slew of economic data released throughout the week capped off with the CPI number for November released on Friday before the opening bell. Friday is also “triple witching”. The one day that happens only four times per year when contracts for stock index futures, stock index options, and stock options all expire on the same day. So fasten your seatbelts as we once again forge ahead together in our pursuit for financial freedom.
OTC BB Watch List
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