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Wednesday, March 30, 2005
Market Recap
Just when it looked like we were headed into bear territory, the bulls woke up and jumped in with conviction today to produce one of the best rallies of this young year. The buyers showed up early and never looked back as the markets closed very strong and at their highs of the day. The NASDAQ finished the day higher by +31 points. Not to be outdone, the DOW racked up triple digit gains and closed higher by +135 points and the S&P finished higher by +16 points. Strong moves by all 3 of the major indexes keeps the markets in cautious bull mode as the NASDAQ closed back above its 200SMA. I say “cautious” bull mode because all 3 indexes are now smack dab in between their respective 50SMA and 200SMA. As hard as it is to do after a strong day like today, we still need to remain cautious with long positions until the indexes move and close above their 50SMA. The NASDAQ and DOW now have very similar chart patterns as opposed to the last few weeks when the NASDAQ was lagging behind the DOW.
The volume today was not as strong as yesterdays down volume but it was strong enough to hold the gains and avoid the late day sell off that we have come to expect lately. When a short-term bottom is being put in, you will often see the down volume exceed the initial up volume as the retail investors unload their shares to stop the bleeding. Volume is always important on the move up but more important is that the bounce holds for more than 1 day. Tomorrow should give us a good indication if this was a dead cat bounce or if indeed the markets have put in a short-term bottom that we can trust. We should expect some profit taking after today's strong move. The key will be the selling volume and if buyers step in to buy the weakness. On a positive note, besides the strength of today's move, buyers stepped in before the 200SMA and that was a hit on the DOW.
Oil and Confidence
It is interesting that a day after we see the consumer confidence numbers decline in the wake of high oil prices, the oil prices tumble dramatically and the markets rally. It seems that no one knows what is going to happen next with the price of oil. We will have to wait and see if the recent decline can not only stick, but if it also translates into cheaper prices at the pump.
As we head into spring, many things look brighter. Spring always has a refreshing connotation to it and it is something that we need to consider with our own portfolio and the markets. We have already talked about spring cleaning, taking a serious look at your portfolio and cleaning out the poor performers. If you did not take a tax loss at the end of the year, now may be the time to sell some of those losers and free up some cash.
There are some positive developments that may begin to draw investors out again. Many companies continue to buy out rivals. With stocks being beaten down as they have been, it is a natural occurrence for this to happen. We have talked about this being something to watch for. There have been merger announcements left and right since we brought this up.
The markets are showing some minor signs of a rally. If we do head into a strong spring rally, we could end up having a very nice summer. We will have to continue our day trades and keep our eyes out for positive signs on the horizon. If oil can drop below $50, I think we could see a major rally in the markets which would make things very bright indeed.
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