Wednesday, June 6, 2007

Another Tough Day for Traders

If you thought Tuesday was a downer, Wednesday was worse, though grizzled veterans will tell you that this kind of mini-correction was necessary. To say that the market was overbought would be a gross understatement. The Dow was setting new records just about every day for roughly a month and the S&P fitfully followed suit recently.

This was mostly profit-taking, some re-positioning of portfolios and a little fear factor - a good thing, a little fear is. It keeps everyone honest and markets orderly.

Dow 13,465.67 -129.79; NASDAQ 2,587.18 -24.05; S&P 500 1,517.38 -13.57; NYSE Composite 9,895.01 -106.46

This brief hiatus from mad-cap shopping for stocks shouldn't last long as the fundamentals haven't changed. It's actually providing a nice opportunity to jump in on recent downturns because the market is almost certain to leap higher over the summer months... unless the Fed decides it's time for a rate hike. Their June meeting is less than 2 weeks away and with energy and food prices on the rise, there are murmurings of a 25 basis point hike.

The drop today was more broad-based than yesterday's action. Declining issues led advancers by nearly a 3-1 margin and the number of new lows (125) nearly matched that of the new highs (157). If the high-low indicator goes negative, we may see a longer, deeper trough than is expected, but with the hordes of cash taken out today, that's less than a 50-50 proposition.

Oil remains the key inflator, up again today another 35 cents to close at $65.96. Gold and silver were marginally higher as well. It's the new paradigm - spend to live. A lot of precious metals traders are losing faith and keeping a lid on the usual inflation hedges.

The Fed may have no choice but to raise rates a little as the EU Central Bank hiked their key rate today to 4%. If the Fed is smart enough, they should see a neutral stance as bullish for the dollar. It's been steady of late and a turn-around - or at least some show of strength - would be beneficial to US interests.

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