Stocks Take a Breather

November 29, 2007

Compared to other days, this was the equivalent of baseball’s changeup. Stocks were quite content as a whole, to stay unchanged for most of the day. On a positive note for the bulls, the market did not give back any of the gains it earned in the previous day. Bernanke spoke after the market’s close and nearly reiterated verbatim Don Kohn’s words from yesterday, stating that it needed to show flexibility in managing the economy – lending investors to believe that the Fed would cut rates at its December meeting by another quarter point.

Here’s what you need to know…

• Market held on to yesterday’s gains – a good sign. However not out of the woods yet. Like to see the market retest its lows again, hold them, and move higher from there. This would be a nice indication and healthy action for the start of another market rally.
• GDP growth met analyst expectations for the 3^rd quarter at 4.9%, bleak outlook for the 4^th quarter with estimates at 1.5%; White House lowers economic forecast for 2008. This is typically why the Fed will cut rates because we are in a worsening economy, which usually leads to a declining stock market (makes sense right?). They tighten rates in good economies to keep the market from increasing too much (i.e. NASDAQ Y2K)
• Oil spiked on pipelines in Minnesota catching on fire. Early on, the reaction was way overdone. Oil prices eventually moderated.

Let’s go to the charts…

NASDAQ held yesterday’s gains very well, and optimism of a market rebound is improving. However Market indicators are say otherwise, leading us to question how much can the market rally in the face of so many problems it is facing.

The S&P likewise fared well in holding the gains made yesterday. However it is likely that over the course of the next couple of days the market will give back some of those gains. There are still a lot of skepticism of the market’s gains and many may use this as an opportunity to open new short positions.