Thursday, September 23, 2010

Market Musings

It has been awhile since I have mused about some of my market thoughts. Main reason is because I haven't really had that strong of an opinion. After realizing (to late) that we weren't breaking down at 1040 a month ago, it has been a matter of hiding in a bomb shelter for us bears. Starting last Friday I started thinking it was possible we could be reaching some sort of topping process. I told several friends I would hate to be short before the Fed meeting and I would hate to be long after. Monday was a big up day but we have lost basically all of that as of today. Are we consolidating or have we indeed been in the topping process I suspected over the last week and are now ready to break down?

One of the main market data points that a month ago made me scratch my head and wonder if something wasn't right (and like an idiot I didn't act upon it) was the durable goods number. Usually, I don't pay much attention to that number (which is why I talked myself out of doing anything last month) but last months number was horrific. Durable goods ex transportation was down 3.7%. If I remember correctly the previous expectation was close to flat. It was a horrible absolute number and a horrible relative number. The market crunched pre market and than rallied and basically ignored a horrific data point. It caught my attention but like I said, talked myself out of doing anything much to my detriment. So this number is going to be interesting. If it is bad and the market sells off hard I think it will be interesting. If it is good and the market pops and than sells off to only finish slightly up or even down I think that tells you alot also.

What I describe above is just a trading signal I will be watching. More fundamentally it is still Europe Europe Europe. The European stock market is now down 3 days in a row and the economic data this morning was flat out lousy showing a very disturbing slowing trend. Ireland is now considered the 5th most likely sovereign to default joining such illustrious names as Venezuela, Argentina, and Greece. Portugal spreads are also widening. Spanish banks seem to be rolling over. Not a good situation. The thing that is holding up right now is the Euro which was surging after the Fed announcement on Tuesday. It may have a little higher to go based on trading technicals but that rise also seems about done. Based on European debt spreads, Europe appears to be in worse shape than it was four months ago. It is just a matter of time before the market pays attention again.

In general the market feels like it has topped. I am watching European government debt spreads, the Euro, and copper to try to give some clues if this is indeed the case. We have the end of the quarter coming up so the likelihood is the market doesn't just fall apart but it will be very telling if it fails once again in this area.

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