Friday, November 28, 2008

More Holiday Trading

After trending sideways for the better part of the morning, buyers pushed the market to fresh session highs as the final hour of trading approached, but it wasn’t until the last 15 minutes that the shorts really got squeezed.

Interestingly, the automakers continued their recent bounce despite a lack of any apparent catalyst while the homebuilders pulled back after their recent run. However, the real head-scratcher is the action in bonds. The TLT continues to hit new highs on a daily basis, even with some positive action in equities. That suggests investors continue to seek the safety of treasuries and/or expect the economy to languish in a deflationary environment. That asset class is carrying yield of next to nothing, so it’s concerning that investors find it more attractive than equities. I plan on shorting TLT soon.

Another concern is the continued pressure on oil prices. Certainly, investors are following the momentum there, but we can’t dismiss the notion of demand destruction, which further puts the notion of economic recovery in question. It will be interesting to see what the reaction is should OPEC cut production at their meeting this weekend yet again.

The indices are running into overhead resistance, and that’s the only real insight that we can get from the action we’ve seen over the past two trading sessions. We’ve seen again and again how dangerous it is to chase strength in this market. The bears gave the bulls some room in the thin holiday environment, and I'll be watching to see if the buyers are willing to step up and provide support when we pull back.

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