DJIM #44, 2009

Having just witnessed one of the most volatile trading week (-4% SPX) since before the rally began, we can't help but think volatility is back for the time being.  What matters now is what happened late last week, notably Friday's (-2.8% SPX) day.  Of course, many will say $USD was the culprit, but that's only part of it.  Coming into Friday, we had a negative slant here on the preceding day's rally.. We cited that Wednesday sellers did not all of a sudden become buyers during Thursday’s rip up.   Reasons for doubt was we felt it was an ETF based/  short covering rip,  individual important stocks did nothing and we added any move upwards will be met by ‘protecting gains/ locking in gains.    What we think we witnessed was this squeeze (sellers) without “conviction” ( buyers, no underlying bid on Thursday) gave another day for MF’s to unload into the strength for their fiscal year end.   A winning year for them after a horrible 2008.   Wouldn’t you as a money manager pack it in last week and start fresh next week putting cash back into the market.  Unfortunately, this has led to a bearish monthly technical end and needs to be paid attention to, especially since FOMC, NFP#  report that will likely cause more volatility next week.

Longer term,  unlike many pessimists still out there, we do believe that market has seen its bottom back in March and we are on a long upward move.   We have pointed out many times in our past journals that we feel this might be one of those marathon rallies that could last years.   From SPX 666 to SPX 1100, it only took seven months or so and it's a move we all wished we'd participated in a more meaningful way.  Oh yes, no matter how well we did last little while, we all wished we should've gone "all in" in some great American companies such as JPM, AAPL, GOOG, FCX... back in the early year.  For bullish traders even as we've been,  it's still been a pretty hard fight as this upward battle literally defied some trading logic.    Market kept on going higher without much of a pullback.    Every sceptical view was ultimately proven to be wrong at the hands of market participants.    If things are so bad or getting worse, why is the market still going up?    Two rounds of earning report and months of economic data have pointed to the fact that American economy is improving.   For some companies, they are taking advantage of the market rebound and improved consumer confidence by executing beautifully.   We have witnessed some very fine reports from the likes of MSFT and AMZN.    For others, the improved environment may still be an adjusting period where they definitely need more time to catch on to the rest.

So, here we are at this juncture.   It looks as though the easiest of the easy money has already been made.   What's in front of us may be more of a stock picker's market which is not a bad thing for the experienced trader.  Many analysts are still seeing a higher finish of SPX by the end of this year.    Depending on the economic data,  this market can behave in different manner over the next couple of months.   For DJIM,  we'd be glad if we can close the year at SPX 1100.    All the fortune telling aside, what do we do now after we just had a bad week like that?    We definitely like the fact this market is pulling back to a more reasonable level.   We actually no longer fear for the fact that this market can top out any hour, it has likely topped out a week ago for the short term.    Any positions we are buying these days would not be speculative/ micro mid cap in nature.    Sure,  there's always the story stocks and sector moves we'll look for.   We are more inclined to build more core positions off those companies that had great earning reports.   Having a market to come down and possibly more further downside to go, it's definitely an opportunity for us.    Technically, we are looking at SPX 1020 as short term support with SPX 1000 and SPX 980 as next two major support levels.    Having checked all these, it doesn't necessarily mean that we'd go to 980 or even 1000 at all.   We are simply keeping these levels in the back of our minds in case we ever get there.

November has generally been friendly to investors, excluding last year.    In all honesty, we are just hoping this market finds a true tradable range and consolidate enough till either eco data or next EPS allows for a move.   There's no rush to pile into plays at the moment,  we'd definitely keep our trading fingers only on the quality stuff until the market stabilzes.