Jump to content


Nick's Picks 5/2/4

  • Please log in to reply
No replies to this topic

#1 TTHQ Staff

TTHQ Staff


  • Admin
  • 8,576 posts

Posted 02 May 2004 - 12:31 PM

NICK'S PICKS A Decision Point Publication By TraderNick May 1, 2004 MARKET OVERVIEW: I'll try to keep it short and simple. The market is at a crossroad and next week will determine the short term direction of stock prices. The FOMC will meet to consider interest rate policy on Tuesday. The April monthly employment report will be released on Friday. The inimitable Yogi Berra once said, "When you come to a fork in the road, take it." The market's reaction to these two events will determine which fork we take. What makes it such a critical time is the fact that the markets have been ignoring good news on the economic and earnings fronts and stock prices have deteriorated to the point where they are threatening to retest the yearly lows, support with a lot of air underneath. The Nasdaq suffered its biggest weekly decline in a year and a half last week and fell below its 200 day EMA. And the S&P is not far from line-in-the-sand support at 1090. If those lows are hit and fail to hold, we are looking at a much larger decline. Uncertainty about the Fed decision and the jobs report has provided the short term weight on the market. The longer term weight has been the chaotic situation in Iraq and the rest of the Middle East. Adding to the uncertainty is a plethora of issues. Traders look at the flood of excellent earnings reports and ask, "Is this as good as it gets?" Will a second half slowdown in earnings growth lead to unfavorable comparisons? Will a combination of creeping inflation and higher interest rates choke off the economic recovery? Many questions; no sure answers. All of which tends to make the old market bromide of "Sell in May and go away" sound like it should be the Eleventh Commandment, chiseled on a tablet somewhere. Except...I think we're close to a bounce. Yes, sell in May and go away is historically a good idea, except in presidential election years, when it's not. The Nasdaq is ST oversold and at the bottom of its ST regression channel, and the VXN, its inverse sentiment indicator, is presenting a mirror image, at the top of both. I do not expect the FOMC to raise rates on Tuesday, not before seeing the Friday jobs report and perhaps one more. I think they'll content themselves with stripping out their neutral policy language and adding a tightening bias. And I do not think the Friday employment report will show jobs growth to be as strong as many expect, or as strong as the previous report. So I think we bounce. Not necessarily a lot, or for long, but a bounce nonetheless. "Walls of Worry" are for climbing, and we're looking at the Matterhorn, if not Everest. [RESERVED FOR SUBSCRIBERS] Trade Well! Nick Proffit