The COT report was not released this Friday so we do not know what the commercials were doing during this week's declines. I predict we will see a marked decline in this coming Friday's report since Wednesdays market decline will not be reflected in the report that was due this past Friday. ( They only reflect up to Tuesday). The reason I believe the commercials finally started covering was during the declines of the last week, as stocks were dropping, there were frequent spikes upwards in futures. These were either PPT intervention moves or else the pros covering some shorts. I believe it was the latter since many were targeting the lows of this week as the bounce point. While there is still the risk of further downside, the pros are pros because they don't take un-necessary risk and would be foolish to not start taking profits from the last few hundred points of declines. They know they can always come back in later on a bounce if they still feel lower levels are coming.
Most of my targets were either met or either missed by small margins so I am fairly bullish here even though I know Friday's low volume day was no real indication of direction. Most of the election uncertainty will be resolved this weekend with only court cases left to decide the remnants of the controversy. Most stocks have retreated to more "recent" over valued historical levels although not longer term true fair value thus I think we could get a decent sized rally. I am not looking for a year 98 or 99 type X-mas rally but do feel as I said last weekend that liquidity injections due to Clinton being close to leaving, expectations for the Fed to back off some in their tightening bias and seasonal issues are lined up sufficiently to make us closer to the yearly lows than at risk for much more substantial declines.
My immediate outlook is for a continuation of Friday's rally through Monday and then a pausing or slight retrace Tuesday before heading up again later in the week dependent upon how far and fast we rally Monday. I will watch my indicators for that clue and fib retrace levels. I also expect some weakness in the more defensive issues such as PG, CAT, IP, ADM etc as I believe currency swap concerns and a slowing of cyclical type business will take affect either immediately or when warnings season rolls out soon. These issues were bid up as a flight to safety but were over done and I think a rotation back towards tech should evolve in the near future. Note I think many of the big tech names are still over valued so it is touch and go on these issues. A break in SUNW 80 from the looong term fork tine would bode bad here but I suspect they may just try and hold these levels and go somewhat flat rather than falling too hard. EMC and a few others that have been strong so far are also in either good clean channels or holding long term forks. This will be tricky as most stocks failed to hold their long term forks so watch carefully to see if the leaders are sold to signal final capitulation or if they remain pillar of strength. Remember that sharp market declines often see a change of leadership as the market comes out the other side.
Financial stocks are showing short term over sold so despite my negative outlook on the sector due to loan risks, I covered my short positions and am flat in the sector. I did get beaten up on my SFA position after adding a bit again in the low 50s on Friday due to the AT&T news so I would stay away from that sector.
As bullish as I may sound, we are not out of the woods as far as risk yet. The Dollar is showing a potential double top and I have class 2 over bought signals firing on it. The XAU bounced as I thought but is now against a strong resistance level although I have no over bought readings yet. A breakout above that resistance line could signal a dropping dollar which could put pressure on equities as foreign money leaves our market. Japan is at new lows for the year and some dip buying there could be a signal that money will be moving and the erosion of the Euro may also cause some more intense intervention that could weaken the dollar so it bears watching.
I think NDX 3000 is easily doable and maybe more but one target at a time. Watch the Wilshire 5000 and R2K as reports were from AMG that outflows were big so there is the risk of a lack of Fund money to fuel the rally. Also there could be a lot of tax loss selling this year and since almost everything is down, it could come with any stock or sector. I think there are more positives than negatives but I would not let my guard down too much. The market has demonstrated time and time again it does not like Gore so if he pulls this one out somehow, all TA could get negated.
I posted the minutes f the October FOMC meeting with bold print on what I felt were key items. They didn't really sound like they were ready to back off yet but some pressures are easing slightly so they may back off the bias and just hold rates steady for a few months. While I was stead fast in my view they would not change up till now, I now think they might although I still favor no change due to the items listed in those minutes. While many think they have killed the market, I still believe it is the bulls own fault for bidding prices to ridiculous levels and that we are simply getting back to more rational although still irrational levels. There still hasn't been what I would consider blood in the streets, capitulation or any type of real panic to signal a bottom with confidence like we had in years past but I do feel the risks of downside have subsided enough to go long. As I posted Wednesday morning though, I did decide against playing options and staying more conservative with common stock instead.
Florida results will be announced in 20 minutes so I will get this posted then have it cut to shreads if Gore is announced the winner and futures open limit down. -ggggg-
Last I would like to thank all the new people that have joined the site this weekend. I received a lot of e-mails and encourage you all to post with insights, questions or opinions.
Good Luck,
Lee |
