A Positive Note to End the Week On

November 16, 2007

What a battle today between the buyers and the sellers as both were trying in their own rights to create an intra-day trend of some sorts to close out the chaotic week. In the end, it was the bulls that prevailed – and they did it by beating the bears at their own game – namely rallying in the last half-hour of the day. But we are not out of the woods just yet, and it is a near definite that we will see some turbulent days ahead of us still. Just like on Tuesday when many investors thought that it was skyward from here after the huge rally, they quickly saw on Wednesday and Thursday how quickly the market can take back those gains – which it did, unflinchingly. So right now is not the time to get ahead of ourselves, as we have to use extreme caution on the positions we get ourselves into.

Today was a particularly volatile day in part because it was options expiration day, where the options contracts expire and action by the buyers or sellers of such contracts are forced to take certain actions in regards to their option holdings. Thus, a lot of traders avoid option expiration days all together – which in many cases is not a bad idea.

Though the stock market was very volatile this week, it nonetheless showed a bit of consolidation, even though the consolidation base is quite wide. We are currently in a very favorable time of the year, in fact, for the S&P, this is the best month of the index. This should provide some support in the coming days as we are bound to face continued volatility in the market.

Let’s look at the charts…

Though for a time the market was looking bleak, there has been some recent positive news out of the market, and that is the persistence of the NASDAQ to hold on to its long-term trend line, despite numerous attempts to drive prices below. Also the candle put in today was very encouraging with the long-tail, showing that sellers tried very hard to sell-off, but the bulls stepped in and drove prices off of their lows to finish higher on the day. For the time being though, it looks like the market will continue to trade sideways.

Our confidence in the S&P is far less, especially after today’s action where the S&P traded contrary to the general market for a long time, and lagged in its performance relative to the other major indexes. We need to see improvement in this index before we gain confidence in the large-caps and financials. But like the NASDAQ, there is a hint of consolidation on the charts.