Rev Shark:
No Need to Rush to Buy
8/18/2005 8:44 AM EDT
"Put your trust in God, but keep your powder dry."
-- Oliver Cromwell
Yesterday crude oil pulled back sharply and the market rallied. The question now is whether we should trust the bounce to continue. Was the move yesterday something more than an oversold dead-cat bounce? Should we be putting some "powder" to work?
If you look at the quality of the action yesterday the answer is no. Although the indices looked OK on the surface the action was weaker than it looked. Breadth was mediocre, small-caps lagged, volume was lame and given the extent of the pullback in oil the action lacked the sort of vigor that signals a desire to do some real buying.
There simply is no reason to have a high level of trust in this market right now. We have increased awareness of inflationary pressures, signs that housing may finally be cooling, problems in retail, and uninspiring news flow. The technical picture of the major indices is also quite troublesome. We have bounced off of support levels but the trend is obviously turning down, and relief bounces like we had yesterday and on Monday simply set up selling and shorting opportunities.
Also keep in mind that this is the slowest time of the year for the market. September has historically been the worst month for the market and August is usually not that hot either. Big institutions know this and they aren't going to be in a hurry to buy.
So we keep some powder dry, wait for opportunities and proceed with caution. There is no reason to rush into this market. There should be the regular supply of trading opportunities but time frames should be short and stops tight. The time to build longer-term positions is not here yet.
We have a soft open on the way. Overseas markets were mostly negative. Goldman Sachs raised its target on crude oil and that is supporting the price there. Weekly unemployement ticked up a little and that is a minor negative. Google should cause a stir today as traders contemplate what the firm plans to do with cash raised from a secondary offering.
No positions in stocks mentioned
Gary B. Smith:
