A More Normal Market

At the beginning of the week I laid out two possible scenarios. In a more normal market I would have expected a move lower this week. Last week we had a very strong move lower from overbought, over bullish conditions. followed by a reflex rally higher. The normal script called for a move lower this week. However, in recent months every move lower would be followed by a steady climb to new highs so that possibility had to be given some consideration.

Today's action looks like the action of a more normal market.  Under these conditions I would expect the market to be under pressure for the balance of the week. If we do head lower into the end of this week we will be oversold early next week. Have a good night.


Anonymous said...

Again, this market is following oil's action.

It has NOTHING to do with over bought /sold readings.

If we never had any uprising in the middle east over the last month,
the market would not have pulled back as it has. The market data is all positive.

It is coming to a head in Libya.

Tsachy Mishal said...

The market is always worried about something or another during corrections. Last time it was about a double dip, the time before Europe etc, etc.

Anonymous said...

Well, there is an easy answer. When, Gadhafi is ousted and all is well in the middle east. As much as it was!

I say the market will rally back big time and continue to new highs.

If you say this is a correction from an extended move higher, then the markets should continue to correct after a small middle east relief rally.
We shall see.

Anonymous said...

Anon 1 and 2 (assuming same person) -- the market uses an EXCUSE to correct. Doesn't matter if it's Egypt, oil, or something Bernanke said. Sure it may appear there are movements because of the news cycle but it's extreme short-term noise. If it wants to go down, it will find a reason. If it wants to go up, it will ignore all reasons that it should go down.

Anonymous said...

Anon 3..

that's pretty much what I said.

I believe this move lower is from oil and the "noise".

When the "noise" is over I think the markets continue their move higher.

We shall see.

Anonymous said...

I expect stocks to continue trending higher until something occurs to put a break on inflation concerns:

a) good weather to crush agricultural commodities
b) new mines coming online to crush the metals
c) bursting of the Chinese, British and Australian housing bubbles
d) wearing off of stimulus in Europe and the United States

None of these changes is imminent, so fighting the upward trend will be exhausting, whereas following it will be extremely dangerous, because the bend at the end is going to be sharp. I see this as an environment for selectively buying intermediate-term bonds and solid dividend payers on price weakness, in anticipation of a return of deflationary pressures later this year.

The Republicans do NOT want the economy to recover before Nov 2012, because Obama would take credit, so expect them to block any further stimulus. Thus if we fall back into recession, it will be up to the Fed to fight it alone, by supporting bond prices. Note the "if" in the preceding sentence. It is possible that the Chinese will pull the whole world into high-growth mode, though by being 100% bonds I'm betting against this.