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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
May 4, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, the debate raged as to whether the
S&P could finish any day above the magic 875 level. Since we are all
technicians now, the rancid fundamentals consisting of GDP down 6.1% for
2009Q1, Chrysler’s bankruptcy filing and swine flu had little
influence. Monday’s and Tuesday’s weak opening were both bought
and Wednesday’s poor GDP report did not solicit any selling --- in
fact, it was the difference to the upside for the week. Thursday and
Friday’s action was much more interesting. We opened Thursday above the
coveted S&P875 level, theoretically signaling a breakout to the upside
and the punters dutifully bought it. Yet by Thursday’s close, the
S&P500 finished below this level. Friday brought an early rally in the
futures above S&P875 which dissipated by the open and we spent all day
attempting to trade above this level, surpassing it in the last few minutes,
giving the technicians what they wanted (a close above S&P875). Experience
tells us that when everyone is looking at the same indicator, it becomes
unreliable as the tape gets “painted” to fit particular patterns.
So what should we look at? My response is to look at the trading in the groups
(retail, tech) that have led the advance to see if confirmation is there.
While tech continues to be strong, retail has turned tail, suggesting a
range-bound market for the short-term. This should work to managed
account’s advantage as we will continue to sell the “rips”
and buy the dips, with stops continuing to be tight as an air pocket to the
downside is not off the table, should the newly minted technicians lose
faith. There’s been little discussion here about interest rates, but
this week’s action requires such. The 10-year Treasury traded above the
3% level consistently at the end of the week for the first time since the Fed
has attempted to artificially keep rates low (to stimulate low mortgage
rates) by buying these securities. This implies that current bond-holders are
starting to get concerned about the supply of Treasuries coming (to fund our
deficits) and are selling these securities faster than the Fed can buy them.
A continued rise in this rate will spawn higher mortgage rates and hurt
whatever housing recovery has begun (if it has begun). As such, it will be
monitored much more closely in the future as these higher rates will attract
funds from CDers (hurting banks by removing cheap
sources of money). Conclusion: Greed (I don’t want to miss the
S&P875 breakout) has surpassed fear (I’m afraid the DOW is going to
0) on the market’s wheel of fortune. We may continue upward here as it
is impossible to time these events, and we will continue to participate, but
if you’re not prepared for a potential down-draft, get yourself a
parachute.
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