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> Nick's Picks 5/2/4, by Nick Proffit
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post May 2 2004, 12:31 PM
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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
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