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Monday, April 25, 2005
Market Recap
The markets were in rally mode today as the DOW picked up where it left off on Friday. It was down -60 points but the key was the close on Friday. It had been down as much as 140 points with just 30 minutes of trading left and rallied 80 points. This strong close carried over today when the DOW gained 84 points. The NASDAQ gained 18 and the S&P gained 10 points. Although this may seem like a nice rally, the charts of the indices are still damaged. I have charts of the DOW and NASDAQ tonight to illustrate the Bear flags that have formed. It will be a good sign if they can break to the upside out of these flags on good volume. However, volume on this rally is not that impressive, so keep watch for a move to the downside and a break below these flag formations.
Leveling the Playing Field
It looks like it has been a very fast paced merger market since we bought this up late last year. Now, even the exchanges themselves are getting into the mix. The NASDAQ bought out Instinet in a move to grow and consolidate trading on the "high tech" exchange. In a similar move, Archipelago announced a merger with the NYSE.
Companies are taking advantage of the downturn in stocks and, as we predicted back in 2004, 2005 is going to be the year of the merger. There have been mergers in just about every major sector, as well as a few surprise mergers announced along the way. It is not even May yet and we are hearing announcements of mergers and buyouts almost every day. This most recent pair of announcements is going to be great for the small investor. This should level playing field for the smaller investor. Electronic trading is going to really shape the future for the markets, and that is what these mergers are all about. This should be a very positive change that will help the average investor get far better execution on trades and keep slippage to a minimum.
The NYSE has always been looked upon as the older brother in the market world. It is filled with household names and is considered the mother of all exchanges and the one to be listed on. The NASDAQ has always been 2nd to the NYSE. It was an upstart filled with names that no one had heard of. With companies like Microsoft making a very humble start on the NASDAQ and turning into one of the most respected and most valuable companies on the planet, the NASDAQ exchange has really came a long way.
The Subtle Signs
There was a brief note out last week stating that consumer borrowing has increased, but by a far less amount than was expected. Consumer habits should be one of the leading indicators that we use to gauge the general trend in the economy. This in turn gives us a head start on which way the markets are likely to head.
The good thing is that consumers are still borrowing money. The increase was far less than predicted, but at least it was an increase. If there is a decrease in consumer borrowing, there will be a decrease in consumer spending patterns, and eventually this will lead to decreases in the stock market. Consumers ARE the economy. If they stop spending, the wheels of business will grind to a halt, affecting the businesses with public stock to trade.
The pace of consumer borrowing has slowed, and this is a sign that we need to pay particular attention to. This will affect the consumer confidence numbers and consumer confidence numbers affect the stock market. These are the subtle signs that the market hands out to professionals.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
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