Daily Investment Interpretations

October 14, 2011

2011-10-14: (Friday Night): The equity markets closed today at their highest levels since they entered the current trading range in August, and slightly above the tops of their respective trading ranges. (Volume was relatively low.) The NASDAQ Composite gained 47.61 points (1.82%) to close at 2,667.85. The Dow jumped 166.36 points (1.35%) to 11,644.49; the S&P 500 closed up 20.92 points (1.74%) to settle at 1,224.58. Oil moved up to 87.37; gold rose to 1,682. The VIX eased down 2.57 points to 28.13.
    Two State of the Markets articles, U.S. Sends Contradictory Messages on 'The Bazooka' and Explaining A 'Fade Trade' Into the Close, discuss what's going on. 
    Although the three market indices have closed above their two-month trading ranges, they've done so on declining volume, and usually, that presages a fall from grace. In the 'Fade Trade' article, Curt Berqquist explains why he's shorting the markets, but at the same time, observes that this is a gamble on his part. If the markets continue up from here, there could be a wholesale covering of shorts as traders scramble to cut their losses, and a bandwagon effect leading to a strong market advance: A quintuple bottom for the markets? (One article today points out that bets that the markets won't rise from here are at a level not seen since the major bottom in March, 2009... a bullish signal.) 
    The other 'Bazooka' article explains the reason for today's market rise: talk by Treasury Secretary Geithner and Eurozone leaders of a financial 'bazooka' in which global government commit to backing the Eurozone with enough money that things wthere will settle down there. However, this is accompanied by the explanation that a measured Greek default is taking place within Greece and the Eurozone in which local creditors are partially paid first. The 'Bazooka' article also explains that these leaders don't actually appear to be willing to commit to an all-out' response the Eurozone's problems. 
    These articles also point out that everything in the stock market so far is based upon hope, and upon past performance rather than anticipated future performance. 
    Other articles include:
    Retail Sales Better Than Expected in September  
    University of Michigan Sentiment Index Falls in October
    Business Inventories Above Expectations in August.
    Mark Hulbert writes: Cash is still king in a bull market.    
    The bottom line is that the indices have closed slightly above their trading ranges (on declining volume) for the first time in two months. Now the markets are at a crossroads. The next few days will be crucial. If the markets advance a little higher, institutions will probably pile on and we'll get our year-end rally. If not, it's back to the trading range. 
    Stay tuned.