Stalking Stocks with the Shark
Time: 01:18pmClear as Mud
Greetings Shark Investors:
The market spent Friday digesting Wednesday’s sharp move higher while debate continued on as market players attempted to interpret just how likely it is that the Fed will have enough flexibility to reduce interest rates in the future. Many feel that the removal of the words “additional firming” -- which effectively softened the Fed’s tightening bias -- was not driven by an absence of inflationary pressures, but rather by concerns over slowing economic growth. Since the Fed emphasized that its “predominant policy concern” is inflation, if future data do not suggest that these pressures do not abate, then they will likely find it difficult at best to ease monetary policy.
Then again, a slowing economy will be driven by a reduction in the demand for goods and services, and as a result, we may find that inflationary pressures will soften on their own accord. There are a lot of “ifs” here, and this uncertainty is one of the main reasons why the action was a bit tame on Thursday and Friday following the fireworks on Wednesday. The outlook for the economy was clouded even further Friday morning when, to the market’s surprise, existing home sales for February actually rose -- versus an expectation that they would fall -- but this report was tempered by data that showed that the median home price fell and that the inventory of unsold homes rose.
Meanwhile, things don’t get any clearer when we consider things from a technical perspective. Certainly, we have seen a short-term higher high, but we still haven’t filled the gap created at the end of February much less negate the possibility we will soon see a lower high, bringing to the forefront the possibility of a confirmed down trend. Still, we have seen a steady bounce higher, and judging from several different measures of investor pessimism, there are plenty of folks on the sidelines to add upward fuel if we fail to see another major catalyst to the downside. In fact, we could easily challenge recent highs before buying power abates and the market stalls.
Regardless of how you slice it, this market is all about establishing your time frames and remaining disciplined. This past week gave the short term players some decent trading opportunities and may continue to do so as we proceed. However, for those who have a longer time frame, it is a different story.
There are a few pieces of economic data due this week, including new home sales, consumer confidence and durable goods orders, that market players may use to trade off. The bottom line, however, is that, even though we may see the market continue to base out at these levels, which may set the stage for further action to the upside and offer up short-term trading opportunities, the technical damage has not yet been repaired, and as a result, building longer-term, core positions remains difficult at best.