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Trade the Markets 6-12-2009

admin on 06 12, 2009

As we have seen in the past several weeks the market is absorbing most of the news pretty well.  We moved from one consolidation to the next.  Our current consolidation is tighter in range on the DJIA.  The consolidation in May was about 400 points wide and our current consolidation is only about 280 points wide.  The tighter the coil (market) gets compressed the more violent the movement is out of the consolidation.  On the plus side we have a strengthening dollar and bond market.  This drives oil and gold down.  Inflation fears may be easing slightly, but the fact still remains that we have pushed an enormous amount of money into our economy to spark growth.  This alone will force inflation fears.  If we add the lack of confidence from major international holders of our dollars (China/Japan), we should expect to have pressure against the dollar and bond market.  The simple fact remains clear that we are relying on international borrowing to keep our country afloat.  The Fed is pushing out higher quantities of bonds/notes on a regular basis and the market can only absorb them through higher rates.  If the market fails to absorb these bonds/notes then there will be a significant lack of confidence in our economy, country, dollar.  This could be catastrophic for the current rally.

We do have one short term anomaly that we should keep an eye on.  We are close to the end of a quarter, which usually drives markets up.  If we can hold above support levels (8600 DJIA and 92.8 SPY) and possibly break the upside resistance (8,850 DJIA and 95.74 SPY) in the market, institutions marking their positions will most likely cause a short squeeze especially near the end of a quarter.

Unfortunately, the factors that got us into this mess are still there.  Our auto industry has failed, our banks are still a mess, now our government has pushed too many dollars into these bailouts that it will lead to the tax payer being on the hook for more money with a higher deficit.  We will continue to have a mix of inflation on some assets and deflation on others.

Expiration is this week, so there may be some slight shenanigans with volatile movements!