November 28, 2007

As if the market couldn’t get more unpredictable, we have a day like today. Bulls are ecstatic and Bears are covering in masses. To say the least, no one saw today coming. The market gapped up very strongly from the start and unlike the usual tendency for the indexes to close the gap, it instead continued to gain more ground throughout the entire day.

Here’s what you need to know…

 

  • Over the last two days, major indexes have experienced its best two day period since 2002. Arms Index indicates a very overbought market on a short-term basis. Likely to see some profit taking tomorrow. If you are short, this isn’t the best time to be covering your positions. Wait for a pullback.
  • Vice Chairman Donald Kohn stated that the Fed would be flexible and with interest rates and will watch the market very closely in determining future policy direction. This is different from the FOMC statement that led investors to believe that they were done cutting rates.
  • Don’t take it for granted that the FED will cut rates at its December meeting. Kohn is only one of the voting members determining interest rates; main policy direction comes from Ben Bernanke and the rest typically follow suit.
  • Banking problems are still a concern. Despite the positive comments from the Fed, Wells Fargo reported another $1B in write-downs due to their exposure in the mortgage markets. Investors are smiling ear to ear after today, but it is imperative that you do not get too excited and then have carpet pulled out from underneath you. Strong rallies in downward trending markets are not uncommon.

Let’s go to the charts…

The NASDAQ had a very strong day, rallying off of the long-term trend line, and never looking back. Capital preservation is still our number one priority and we will be careful with committing ourselves to too many positions at this time.

The S&P broke the downward trend line and surged ahead throughout the entire day. It will be key for the market whether it can hold on to these gains for the remainder of the week.

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