Feeding Frenzy
Last
week proved to be the beach ball week we anticipated,
and the previous Friday’s NYSE volume of
1.6 billion proved to be more than anything we got last week. The Generals
defended their recent gains into month-end, as there was the Tuesday down with a
big up on Wednesday to offset it on only 1.3 billion pre-holiday NYSE volume.
Friday was the 1:00 p.m. ET closing, as the major indices finished -0.3% for
both the Dow
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PowerRating). Bottom line was a slightly positive week for the major indices.
The tech sector led the
week at +8.1%, consumer cyclical +7.1%, and the basic industries +5.6%. The semi
sector as a whole advanced +11.7% over the past five days, and the short
interest in this sector is now small, so anything here forward will take the
Generals’ money to move it without much help from short covering.
The media spin was loud
last week, as the market got some positive revised numbers in GDP up 4.0%, and a
decline in jobless claims for the second month in succession. Their favorite
consumer confidence rose, and durable goods rose for the first time in over
three months. Copper also continues its rally from a nice 1,2,3 higher bottom.
Revisions have always intrigued me, especially coming in the middle of a
political football game. Greenspan drops rates a half a point and tells us “new
slowness in the economy,” and then in the blink of an eye, numbers are revised
upward and everyone jumps on the “here we go” wagon. That action makes me ask
are the Fed and Greenspan clueless, or is the Bureau of Labor Statistics fixing
the game?
Based on the sectors that
are now moving, the perception of economic recovery has certainly gotten
stronger. This has resulted in more allocation adjustments by pensions switching
from bonds to stocks and a catch-up fever by many money managers that didn’t get
enough money into the game until the latter part of this rally.
We start the week with
new December monies, in addition to the bond and stock allocation process that
is heaviest in the first part of the month. This comes as the major indices and
many sectors are extended. The Nasdaq and NDX 100 are pushing against their
200-day EMAs and are just below their 3.0 standard deviation bands as they have
led the rest of the market in this rally.
For example, the
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band at 29.80. The
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200-day EMA of 30.46, while its 2.0 to 3.0 standard deviation bands go from 30
to 32.60. There is a confluence of at least five numbers for the SPX from the
30-week EMA of 938 up through 946. With the early green in the futures, the SPX
will open about right on its 2.0 standard deviation band, with the 3.0 standard
deviation band and Aug. 22 high up at the 965 – 970 level.
Based on the extended
zone the major indices are now at, my read on it is a short decline into the
Dec. 17 through 20th period after this first week of putting new money to work
and bond/stock swaps. I would then look for a very sharp up move into year-end,
as money managers fight to improve their numbers to restore some confidence in
their investors. I will only remind you that the event risk is getting more
ominous by the day which is getting somewhat ignored in this rally frenzy. I
have hedged most all longer-term positions, and will complete it into this week.
After the extent of the gains and having taken 40% off the table, I am very
happy to pay for some insurance on the remaining 60% position. The average
implied volatilities on the indices and sectors and most stocks are back to
where they were at the August highs.
Have a good trading day
and be careful.
Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Friday’s NYSE TICKS