Wednesday, May 5, 2010

Market Thoughts

Talk about a cross road at the market. Where do we go from here? Is this like February where we are corking up to start what will seem like another endless rally?

Some thoughts. If you go back and read what I wrote in early February I kept saying my biggest fear from the bear side was this was going to be like August of 2007. If you remember, the market sold off hard on bank concerns, the Fed lowered the discount rate, the market started climbing to new highs in October and early November of 2007. That was two in a half months before the market realized, Houston, we have a problem. This time we sold off hard because of Greece, a large problem that the market than threw off as nothing. Well we have again gone two an half months and Houston is getting another call that we have a problem. The situation wasn't really resolved. I find that very similar and with the economy topping out world wide, it seems a market top is possibly in the cards. With that said, regardless it won't go straight down. So where are we currently?

Tomorrow is going to be a very interesting day for two main reasons. Tomorrow morning you have the ECB meeting. They aren't going to raise rates obviously but will they announce some sort of QE program? Very unlikely. Tomorrow is also interesting because investors will start thinking about the Friday payroll report.

The European markets are down two days in row very sharply. My guess is the European markets will rally on the ECB release. If they don't, if the sell off intensifies, start throwing over board the cargo. If as I expect the European markets do rally, I think you will see a U.S. market bounce also going into Friday's release.

Unless the ECB starts QE, the meeting tomorrow is a non event even if you do get a bounce or they lower interest rates. The bounce could be hard but if there is no QE you sell into it. Period. If there is QE, that could be enough of a jolt to send the market up for awhile just because so many investors believe that will solve the problem (please).

From a trading perspective, the best outcome is a bounce tomorrow into the Friday payroll number. If you get that, I don't think the number matters on Friday (though CNBC will act like it does) as the market will sell off going into a weekend with huge unknowns surrounding Europe. Even if the payroll number comes in really good, the market will sell off because the payroll number just doesn't matter and it will be explained away as the positive outcome was because of census hirings or because of Europe or both. Basically, who cares if the news is good, we have other problems. Won't that be a switch?

For the bears (purely conjecture), you would love to see the market sell off to 950 to 1050 over the next one to three months while Europe buckles and eventually it is resolved (short term) with a huge IMF package that comes in or QE by the ECB. You than get a large rally before the bottom really falls out because of the U.K., Japan, and weaker economic data.


themog said...

I think this week was the first time i have seen any bearish articles out of the msm. That being said I am just baffled how so many still seem to be living in fantasy land. I dont know much, but I know debt problems cannot be cured by more debt and this entire thing will collapse at some point. I just dont understand how so many smarter than I cannot see what seems to me to be trivially obvious.

Market Seer said...

You know more than almost any person of importance in Washington. Knowing that more debt doesn't solve debt problems is all you need to know.