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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
December 22,
2008
From Elliot
Goldberg, Registered Investment Advisor, Goldata Financial
Last week, trading began quite quiescently (say that 5 times fast) with Mr.
Market waiting for word from the Fed on Tuesday about the future of
short-term interest rates. Expectations were for a 50 basis point drop (.50
%), but the Fed announced a drop of 75-100 basis points in its target,
surprising the market with its aggressiveness. Bulls took charge and drove
stock prices higher to previous resistance levels, where they calmly sold off
for the remainder of the week. While many will view the Fed's actions on
Tuesday as the most important event of last week, the view from this perch is
that Thursday and Friday provided more important clues as to the market's
future. Place money goes to the continued reduction in volatility exemplified
by Thursday's market drop of 3%, yet volatility actually came in that day.
Earlier in the fall, market action like this would have increased volatility
by at least 5%. Friday's flat market resulted in an additional significant
drop in volatility. The winning ticket, though, is that prices for
non-government debt instruments rallied both days across the board.
Interpretation: The market is concluding that the Fed's action will
eventually work and the risk/reward for owning more risky debt leans to the
risk side. If this trend continues, credit will continue to thaw and that, at
some point in the near future, companies will have the credit they need to
begin purchasing goods and services again and future earnings expectations
will return to more historic levels. We cannot wait for confirmation of this,
as the market will trade ahead of it, so we must continue to accumulate
positions and leave room for the undeniable bouts of minor selling. The next
two weeks are, historically, quiet, but give advantage to the bulls. Most
likely outcome: The fundamental news will continue to be negative, yet the
market will continue to ignore it. Volatility will continue to calm as we trade
up to just below resistance at SPY92, with a breakout to the upside in early
January. Stops will be in place to protect the downside, but it feels good to
finally get out of the bomb shelter (cash) and smell the bullish air.
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