December 27, 2007

After a few days of strong rallies, the market possessed a bearish bias today as a result of combination of geopolitical unrest in Pakistan and a lower than expected durable goods order report. However, although the last hour selloff accelerated losses, Wall Street traders and portfolio managers didn’t cancels their vacations to liquidate their portfolios on the news of a weak durable goods order (that was basically in line with estimates) and the assassination of Pakistan ex-Prime Minister. In fact, it should be noted that the selloff off was on one of the lighter volume days of the year. The silver lining to economic reports out today was the consumer confidence number that posted a surprise gain to 88.6 from 87.8 despite all the negative media sentiment and “Gloom and Doom” holiday spending predictions from the weeks earlier. 

On another note, remember that there can be exaggerated volatility the last couple of trading sessions as portfolio manager want to try to position there holdings for the end of the year report to investors and to take advantage of tax write-offs. Combined with the light volume, today’s selloff was very unconvincing. If the selloff continues, we hope to pick up some swing trades and or a possible long term investment as a result of the weakness. The market seems to have retested its bottoms before last week rally and is starting to shrug off bad news from the broader financial sector. The trading strategy to sell the bigger rallies and buy the selloffs, will remain the near term strategy.

Let’s review the charts…

NASDAQ led the way with the largest percentage drop. However it remained above the 50-day moving average and could remain range bound going into the New Year. The consecutive tests of the lower channel of the long-term trend line shows that the long term positive trend is still intact.

S&P sold off as well but not to the extent that the NASDAQ had. It actually closed slightly below the 50-day moving average. It will be important to see if it can retake and remain above the 50-day moving average at the start of the New Year.