As is always the case after a standout day, the main question through
Thursday's session was whether Wednesday's gains would hold and, if so,
could traders manage to tack on a little more with some follow-through.
The day's uncertainty soon gave way with a little help from the "Es"
(remember them?). BEAS, CIEN, and HWP showed impressive results with
their earnings releases and served to lift the important technology
sector. Leading indicators came in slightly stronger than expected and
jobless claims fell for the second week in a row to provide economic
support, but the day's most important story came near midday when the
White House presented its energy strategy. The administration is
calling for increases in coal output, oil and gas exploration, the
expansion of nuclear-based power generation, tax credits for
alternative energy users, and conservation measures. Mr. Bush's
response to the country's energy mess is clearly the most ambitious in
twenty years, and was quickly embraced by investors in energy, oil
services and alternative power issues.
Having created the sense that the country is finally dealing with a
major part of the crumbling infrastructure that's been too long
ignored, the president's remarks helped maintain the momentum that
gained steam soon after Thursday's open. As traders, we appreciate the
effort, as it's much easier to make a profit in a market environment
that doesn't change direction every few minutes. Thursday's session
didn't continue unabated in a single direction, of course, but there
was a far more positive tone than has been present in recent months.
Increasingly confident comments from a number of companies and even a
few indications the visibility is improving holds out promise that the
worst is over and that it's time to start nibbling in earnest.
Thursday's trading might well have been the best possible outcome
following Wednesday's gains. While we certainly wouldn't want the
markets to return all of yesterday's gains, neither would we want to
see a second day of non-stop, rip-roaring advances! Why? Healthy
markets don't go straight up, and instead need to build on slower, more
gradual gains over a period of time. That provides the opportunity for
support levels to become better established and decreases the risk that
we're just building castles in the air. No one likes markets that
display violent volatility except for "30-second" daytraders, and most
of the players in the market aren't equipped for that.
Unfortunately, some volatility can't be avoided, and we'll get some of
that Friday, as options expiration will serve to generate some
gyrations. It's been a pretty good week for the bulls and there will be
no surprise in their taking some profits off the table on the way to
unwinding positions before the weekend. Since the bulls have upside
momentum but profit-taking will counter-balance additional gains, we
tend to expect that Friday could easily be something of a "nothing"
day, characterized by the inability to move substantially in either
direction. If a strong move develops in either direction, by all means
take advantage, but if such a move isn't obvious, it's important to
recognize that the market isn't giving anything today and accept that.
Forcing a trade when one isn't there is one of the key mistakes traders
make, and a lack of patience can be quite expensive. There will be
plenty of obvious opportunities in the near future, so don't waste
time, energy, and money chasing what isn't there just yet. |
