Incredulous Bears We Are

Tue, Aug 5, 2008 | Jared Woodard

Fed, Market Commentary

In spite of all the fashionable buying today, our outlook over the next week or so isn’t particularly bullish, and here are some reasons why:

  • Historically, it is really uncommon for the market to move up 2% the morning before a Fed announcement…
  • …and in general, these big Fed rallies tend to end either in boredom or in tears over the following several trading days.  Over the past decade, these kinds of flashy rallies have been sustained less than 33% of the time one week later, and even then by only a small margin.
  • Volume on the indexes was okay today, but just okay.  Price action this dramatic is usually coupled with volume that is at least higher than average, and we’re obviously not seeing that.
  • The indexes have seen plenty of overhead resistance here, around 1285-1290 for example on SPX.
  • Short-term relative strength indicators have the major indexes as short-term overbought, along with overbought readings above 90 in the Dow (DIA), Financials (XLF), Healthcare (XLV), Retail (RTH), Consumer Discretionary (XLY), and Transports (IYT).  Meanwhile, gold and commodities are most definitely short-term oversold.

We wouldn’t be surprised to see a move higher in the morning, and then a snapback and some choppiness for the rest of the day.

UPDATE: Rob Hanna at Quantifiable Edges steps up with some good analysis along these same lines:

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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