Although the markets closed the week on a down note, the session turned
out to be much better for bulls than pre-market activity indicated it
might. The day started off in an unfriendly fashion when most stocks
gapped considerably lower at the open, but then managed to rebound and
cross the finish line, well off the worst levels of the day. The
unwillingness to go down easy reveals an encouragingly stubborn bullish
streak as traders continue to sort through an enormous number of
earnings reports to find the gold nuggets. It's no surprise to anyone
that the outcome has been mixed, both in terms of results and future
outlook.
As the street struggles to digest an overload of financial information,
the price action for most stocks remains within a relatively narrow
range. This up and down movement is undoubtedly frustrating to long
term investors who have become accustomed to only occasional rest stops
while traveling along the Bull Market Interstate otherwise known as
Wall Street. On the other hand, short-term traders love the somewhat
predictable stop and go movement between support and resistance. As
some of the most successful traders know very well, this type of
"swing" can hold plenty of steady profit potential.
There are several factors driving the market's yo-yo behavior, but the
uncertainty from hazy earnings visibility has raised the anxiety level
on par with driving in a thick fog. This increased angst has resulted
in a higher number of knee-jerk buy-sell reactions than usually
accompany the quarterly earnings carnival. For example, investors were
almost panic stricken one day this past week by negative comments from
one chip equipment maker, then euphoric the next when positive comments
came from another. With talk of an impending recession picking up
steam, the likely hood of this sort of range bound trading continuing
for a while longer certainly exists.
Fed Chairman Alan Greenspan's message this week to Congress included
remarks that inflation remains contained and that the "risks would seem
to remain mostly tilted toward weakness in the economy." Bond traders
sure liked what the chairman had to say, and even stock traders reacted
positively the next day after an initial hesitation on Wednesday. No
surprise there; it usually takes a day or so to figure out what the
venerable Mr. G has actually SAID after an hour of "Greenspeak." In
this case it's clear that more interest rate cuts will be forthcoming -
IF conditions warrant. While this is encouraging, the news hasn't been
heralded as triumphantly as in the past. Maybe the FOMC's six
consecutive rate cuts will turn the economic tide and put smiles back
on the faces of US economists, but the stock market troops are still
weary from trying to run up the down escalator to elude the bear that's
chased them for over a year. Perhaps they're just too tired for an
enthusiastic "hip, hip, hooray!"
But nothing refreshes a trader's spirit like a nice, healthy profit -
and there have been plenty of good trade setups to choose from lately
despite the gloom on the street. As tough as it may have seem at the
time, preparing to follow the trend even when it's down pays off
handsomely for those who add the skill of shorting to their trading
toolkit. |
