At last the stars are lined up for a sell off. For the last month the market has felt overvalued, over hyped, and the press has pronounced the Bear dead so many times I thought it might be 1999 allover. For the last month I have been a spectator as equities continued to move higher, and I�ve been wrong. However, next week looks like the beginning of summer reality check.
The first key that makes us feel the market is tired is last week�s response to news. For the past several months all news was good news. If the news was somewhat negative the market would float around the unchanged level for the day. However, if something came out that was mildly positive up 200 pts. on the Dow. That sentiment all seemed to change at the end of last week. The Philly Fed clocked the market on Thursday, but on Friday two major Dow companies reported positive news, however the market could not rally as it would have a month or two ago. If one is bullish on the economy the news GM reported should make one feel giddy. What a proxy for the entire U.S. economy when the largest car dealer in the country says we no longer have to give away our cars because demand is there. In my book that is much more meaningful than a survey that says things are picking up in one state in New England. However, even GM�s bright forecast could not get stocks running. A sign the worm is turning.
To kick off next week we have Consumer Confidence. For the last several months the consumer has said they have been getting more confident with each passing day. We think that ends this month. Not long ago the Michigan Sentiment Survey has foreshadowed what we can expect from Consumer Confidence. This month the Michigan Survey took an unexpected dip, and we should see a similar reading in Consumer Confidence. Look for a sell off after that information is released Monday Morning.?
The next bit of negativity will follow with the Federal Reserve. We don�t think the Federal Reserve needs to cut rates at all, but it looks like we have been out voted. With a 25 basis point cut in rates the market will be disappointed. The market will not respond positively regardless of what the Fed does with rates. A fifty basis point cut and the market will say oh no the economy is weak. It is as we mentioned before, where all news used to be viewed as good news, the market is beginning to reverse course and new news is beginning to be looked on with skepticism.
The one thing that will keep the market buoyed throughout the remainder of the month will be fund managers putting cash to work as the quarter draws to an end. Our parameters for the market have the Dow Jones bouncing between 100 or so points higher, but we also see the potential for a 5% decline sometime over the 6 weeks. If you have cash the risk/reward opportunities suggest it is better to continue to sit on the sidelines. Equities seem fully priced at these levels. Good Trading.
For the previous twelve years, Tom Hayden has been a NASDAQ Market Maker in a majority of the stocks listed in the NASDAQ 100. Over that time Tom has traded several billion shares of NASDAQ listed securities. Individual Accounts Managed by Tom Hayden are up 10% year to date. Questions, comments and inquiries are welcome and Tom can be reached at TEHayden@advantexmail.net. –
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Disclaimer: We hold no positions in stocks that are mentioned in the current week�s write-up. Any statements issued are opinions and should not be relied upon for market decisions. Mr. Hayden�s columns are not intended to constitute investment advice or a recommendation to buy, sell or hold any security.
