Friday, November 20, 2009

Follow The Hot Money?

The bad news this week was that we had a four-day streak of poor action. We held about even on Tuesday, but then sold off the rest of the week. The good news is that it is exactly the sort of consolidation we need. We were a bit overbought as the major indices attempted to make new highs and now, after backing and filling for a few days, there is a pretty good foundation for another run at the highs.

The selling this week wasn't particularly vigorous. We didn't hit any major air pockets and the dip buyers showed up late every day to do their thing. It was just some mild selling from some profit taking and movement of shares into stronger hands.

Much of the action continues to be highly correlated to any movement in the dollar, which is making for some very reactionary trading, but we uncoupled a few times for brief periods. There is no question but traders are keeping a very close eye on the currency markets these days, which makes for some potential surprises should the dollar suddenly strengthen, though there isn't much we can do about it other than be aware of the situation.

Next week, trading will be thin around the Thanksgiving holiday, but there is often a positive bias to the action. If that doesn't develop, it could be a very ugly bull trap, but there is nothing very worrisome about the technical condition of the major indices at this time.

The main thing I'll be watching for next week is pockets of "hot action." The thinner holiday flows often result in "hot-money" traders aggressively playing certain themes or sectors. With the bigger money on the sidelines, there could be some substantial moves if you are in the right things.

As always, I don't want to over-anticipate, but conditions look pretty good for some trading action and I'll be working on watch lists this weekend.....

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