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Market Update

sp-bear-mkt-view1

In an earlier post, I showed this chart and explained how we may have had a change in market psychology as we were for the first time during the bear market showing increasing prices and increasing volume. I noted that we were looking for a low volume consolidation that would let buyers from the sidelines into the market.

You can see on the chart that we did have a very short-term low volume pullback. I would have expected it to be a longer short-term (pardon the oxymoron) but it could mean that the demand to get into the market is so high that the buy the dips strategy is being implemented on any small dip. Or, it could just be a head fake bull-trap to draw in more buyers before it pulls back in a bigger way – if you look at the up volume over the last couple of days, it was higher than the down volume in the low volume consolidation, but it was not as high as the increasing volume of the green trend line.

I also noted that the overhead resistance is minimal at this point (see the comment on the chart near the horizontal volume-by-price bars).

There is one major event on the horizon that could derail everything in both the stock and bond market: Wall Street wants Federal Reserve Chairman Bernanke reappointed when his term ends in January. So far, the administration has not made up its mind. Markets do not like uncertainty, and if an announcement is made that removes him and appoints someone else, that uncertainty would likely send both the stock and bond markets down several percentage points.

So, we are in that wait and see mode: ride the market up but be prepared to raise cash if the bull trap comes to fruition. The most likely scenario is the market head up to our 1050 target, but we have to be prepared for anything.

Enjoy your weekend.

Mark