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The Tug of War
Author: Ravi Prakash (info)
Website: http://www.optionstradinglessons.com/
Posted: February 25th, 2008 at 10:29 am EST
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The Bulls and Bear continue their tug of war on Wall Street. The general bias continues to be to the downside. However, the bears have not succeeded in taking the market to new lows as yet. Just as every rally is sold, it seems smart money is buying the good stocks on every dip. Short interest has increased and so has pessimism. This week was close to flat as I had thought it would be. News on Friday that a bailout of Ambac Financial is in the works allowed the DOW to show that it can still stand up straight if needed. The last 30 minutes on Friday saw an amazing and swift run up. A lot of media time seems to be dedicated to doom and gloom and the recession we may already be in. But I have yet to hear anyone say with exact certainty what to expect and when.
Commodities like Oil broke the $100 a barrel barrier. Gold seems to want to bust through the $1,000 mark per ounce. The government issued Inflation numbers showed an up tick in the overall number and the “core” number. As I have said before the “core” number is based on fiction and not reality. Regardless, all these figures point to a slow down of the economy and could hurt other sectors namely employment. The layoffs have started especially in the financial sector. I will not be surprised to see the same in other sectors of the economy soon.
I see that the major indices are trading in a narrow band and that band is getting narrower. This pattern is usually resolved by a big move up or down. The bias right now is down, but there has been so much selling, a lot of it based on fear that it would not surprise me if the next move is up. This week Garmin came out with superb earnings and revenue and the market took that good news and sold the stock as a reward. But that will change soon, because, money always finds its way to growth stocks.
Next week the financial industry closes their books for the quarter. If these guys can do better than the newly lowered expectations, then we should see some money on the sidelines re-enter the stock market. I did hear a theory that bank and financial stocks have a 5 year cycle of ups and downs. Their 5 years of upside did end recently and coincided with the recent credit crises.
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Authors, Indexes, Investing, Options, Ravi Prakash, Stock Market, Trading
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