Wednesday, August 22, 2012

Stocks Split in Another Lackluster Session

There were heaps of indecision and disbelief after yesterday's rise and fall led to a stumbling session for US stocks on Wednesday, with the major indices split after a midday rally pushed the S&P and NASDAQ modestly into positive territory, but left the Dow and Composite with marginal losses.

With literally no data points on which to trade, investors were mostly in a defensive posture until FOMC minutes were released at 2:00 pm EDT. The idea that the Fed might still be considering some easing before the November elections lit a fire under some traders, though the size of the move was unconvincing.

It's unlikely that the Fed would move decisively soon unless there are overt signs of weakness in the economy to a greater degree than has already been proven. Fed Chairman Ben Bernanke and the rest of the world's elite traders, economists and analysts will gather at Jackson Hole, Wyoming, next week for an annual economic symposium, though skepticism over whether the Chairman will make any earth-shattering announcements abounds.

That is primarily what has the the bulls running for cover, because the economy has been sullen and without forward momentum, even while stocks have recorded strong gains through the summer. The entire June-August rally may have been built on false hopes and pipe dreams of another round of quantitative easing.

Without a monetary boost, stocks could suffer anything from a mild to severe correction within the next two weeks, and the charts are beginning to show signs that Tuesday's double top was something to actually be concerned about.

With little in the way of economic data this week (New and existing home sales, initial unemployment claims and durable orders), traders have little upon which to trade, so the late summer doldrums should continue, at least into the early portion of next week and possibly through Labor Day.

After that, the experts will be back on the street with new strategies or old ones, based entirely on best guesses as to the outcome of the elections and how long European leaders can keep their juggling act going without dropping all of the balls.

It's a strange state for the markets, full of uncertainty and doubt, though very close to 52-week highs. It's ripe for something - either a breakout to the upside or a 5-15% slide. And, while everyone has opinions, nobody is really putting out convincing arguments on either side.

The market bears close scrutiny at this juncture, as the next move may be decisive and worth playing, but only if one has guts and conviction to stick with trades over the next couple of months, because, as has been shown all year long, this market likes to gyrate like a lithe belly dancer without giving off any signs of where it's headed next.

Our money is on the downside, but we've been in that posture for a long time and have been in cash or equivalents for the better part of the past four years. If the precious metals continue to gather momentum, that could convince us to take a flier on some puts or shorts in selected stocks or indices. If new highs - new lows continue to compress tomorrow and the A-D line opens negative, we could be all in on Diamond (DIA) and/or Spider (SPY) October puts.

Both gold and silver have broken out of their recent ranges and could put in a long, strong run through the end of the year, so the buying opportunity window may be closing quickly on the metals, a favorable trade the past twelve years, despite persistent meddling and price fixing by major and central banks.

Dow 13,172.76, -30.82 (0.23%)
NASDAQ 3,073.67, +6.41 (0.21%)
S&P 500 1,413.49, +0.32 (0.02%)
NYSE Composite 8,079.02, -3.66 (0.05%)
NASDAQ Volume 1,426,827,000
NYSE Volume 2,809,365,750
Combined NYSE & NASDAQ Advance - Decline: 2122-3396
Combined NYSE & NASDAQ New highs - New lows: 93-53 (compression)
WTI crude oil: 97.26, +0.42
Gold: 1,656.80, +16.30
Silver: 29.84, +0.28

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