Michael Evans
2/14/2006, 08:42 PM
The surprising gains in the market gave mixed signals. Of the 7 indicators we look at most closely, 6 of them signalled buy for the S&P 500, but only 2 said buy for the Nasdaq. Such split decisions don't happen very often, but they are hardly a vote of confidence. In another test I use on up days, I looked at the top 50 gainers of the 300 stocks I follow regularly, and 15 of them gave fresh buy signals. Usually you need about half of them, or 25, to signal the beginning of a rally.
Fundamentally, let's not hear any nonsense about how sales were propelled upward by those soaring Jan retail sales. That's a one month fluke, and the early comments on the market today said that traders were concerned that such strength would lead to more Fed tightening. That perception rapidly gave way after 11 AM on -- nothing. That's right, none of the fundamentals changed. In that case, the rally almost certainly had to be due to short-covering. Sellers who read the technical signals as negative and were worried about whatever Ben would say tomorrow figured they better cover their positions in a hurry, and then the day-trading momentum types took over.
As far as we can tell, Bernanke's comments on Wed will be pretty much in the nature of a non-event. No Fed Chairman rocks the boat in his maiden voyage. Even Tall Paul, he of the "blood on the floor" messsage, waited a while before instituting the Saturday Night Massacre. Besides, there is no particular reason for Bernanke to act quickly and decisively, given that the economy is plodding along at normal rates and inflation, while tilting a bit to the upward side, is in no danger of exploding. So he will say something to the effect that the economy continues to show reasonable strength, inflation is a worry, the Fed may continue to tighten for a while, etc, ad milquetoast. Traders may try to make something out of nothing but if they do, any knee-jerk reactions will be quickly reversed.
I don't think the market is going much of anywhere in either direction for a little while. Playing it like a flat market is your best bet these days.
Fundamentally, let's not hear any nonsense about how sales were propelled upward by those soaring Jan retail sales. That's a one month fluke, and the early comments on the market today said that traders were concerned that such strength would lead to more Fed tightening. That perception rapidly gave way after 11 AM on -- nothing. That's right, none of the fundamentals changed. In that case, the rally almost certainly had to be due to short-covering. Sellers who read the technical signals as negative and were worried about whatever Ben would say tomorrow figured they better cover their positions in a hurry, and then the day-trading momentum types took over.
As far as we can tell, Bernanke's comments on Wed will be pretty much in the nature of a non-event. No Fed Chairman rocks the boat in his maiden voyage. Even Tall Paul, he of the "blood on the floor" messsage, waited a while before instituting the Saturday Night Massacre. Besides, there is no particular reason for Bernanke to act quickly and decisively, given that the economy is plodding along at normal rates and inflation, while tilting a bit to the upward side, is in no danger of exploding. So he will say something to the effect that the economy continues to show reasonable strength, inflation is a worry, the Fed may continue to tighten for a while, etc, ad milquetoast. Traders may try to make something out of nothing but if they do, any knee-jerk reactions will be quickly reversed.
I don't think the market is going much of anywhere in either direction for a little while. Playing it like a flat market is your best bet these days.