Not quite the bottom, but real close!
The Dow slipped over 300 points from yesterdays high and almost touched the recent support at 9200. Traders looking for an entry point at the bottom of our recent trading range were eager to step back into the dip and the market bounced over +133 points off its low for the day. The drop was caused by a falling bond market and worries of interest rate hikes in the future.
With bonds under 5.5% yield investors are more than likely to buy stocks for a higher yield. With rates over 5.5% the bond market starts looking more appealing as a safe haven with a reasonable yield. With the yield at 5.6% the bonds continued to lead the market lower and extended the afternoon sell off from yesterday.
Stronger than expected economic data released this morning renewed concerns that the Fed will be raising interest rates before summer to cool the economy down.
Alan Greenspan warned traders in his Humphrey-Hawkins testimony before Congress yesterday that the Fed would be forced to take action if the economy continues to expand at its current pace and developing markets continue to recover at their current pace. Either way we can't win. Global economy is down, market is down from earnings worry. Global economy is up, market is down from economy overheating and interest rate increases. Go figure.
Another cause for worry was the drop in the dollar compared to the yen. Traders feel the imbalance is due to Japanese investors selling their positions in the U.S. markets and repatriating the proceeds to Japan to bolster their balance sheets before the end of the current quarter.
The strong bounce was helped by the banking sector which held its ground and actually closed positive. If analysts really thought the interest rate would rise sharply then the banks would be the hardest hit. Since the sector is still showing strength the feeling is we might only see a retraction of one of the recent rate cuts and not a big rise.
Some analysts feel the market may continue to lose ground over the short term due to the negative internals but others point the the continued rebounds off 9200. If the closing rally holds tomorrow then the 9233 low of today could be considered a "higher low" and a successful retest of the previous low. All good signs.
Remember that a -310 point drop in the Dow over about a four hour period in the market, could always trigger a technical relief rally AND that rally could be short lived. We of course hope that it is just not "business as usual" and back to the 9200-9400 trading range. We will not know until the 9400 upper range is broken and held. A successful retest of the 9600 high could start us on the way to 10,000. I am not currently convinced this will happen any time soon. The advance decline line is still severely depressed and any meaningful rally must include a reversal of this trend.
Traders were optimistic that the end of day bounce would carry over into Friday and the futures are up slightly at present. I would be cautious about starting new positions until the market has established a new direction.
The first Option Investor Seminar is now history and was a stunning success. Everyone that attended had a great time and to our amazement many were trying to reregister for the overflow seminar scheduled for Mon/Tue Mar 8th/9th. This was true confirmation for us that it was a quality product and filled a definite need. It was really fun meeting subscribers and listening to your success stories and yes, some not so successful stories. Attendees came from as far away as Italy, Mexico City, Boston, Hawaii. Many friendships were started as attendees traded stories and got new ideas from not only the OIN and OIA staff but from other traders as well. I really enjoyed meeting all of the attendees (at least is seemed like all) personally. I hope the individual consultations not only from myself but the rest of the staff as well will provide a great benefit to your trading. I think the entire staff came back energized with the feeling that we are making an impact in the lives of our readers. We are really looking forward to the March seminar and a chance to meet and talk with readers again.
Have a great weekend!