Friday, September 24, 2010

Next Week, A Battle

After three negative days in a row this week, the market was probably oversold enough for some sort of recovery, but almost everyone was surprised at how strong a bounce we had today. We had slightly better-than-expected durable goods data, and new home sales were okay, but it seemed to be primarily a bullish hedge-fund manager on CNBC that really stirred up a buying frenzy.

Maybe I shouldn't use the word 'frenzy', as volume was surprisingly tepid for such a big day, but breadth was solid, at over four-to-one positive, the point gains were substantial, and there was strength across the board in all major sectors.

The Nasdaq 100 continues to lead, as big-cap technology stocks are being chased straight up on top of an already tremendous move.

I heard a number of traders calling this toppy action, and while I can understand their arguments, it doesn't pay to fight this sort of momentum. A lot of folks are writing this off as a Fed-induced liquidity rally, but with performance anxiety high and end-of-the-quarter pressures next week, it is likely to be tough going for the bears.

The one thing we can say for certain about the action today is that it caught a lot of folks by surprise, and many are going to feel frustrated about that this weekend. Will that make them buyers on Monday morning? We have had big gap-up opens the last two Mondays, so it is going to be very interesting to see if the pattern holds this coming week, especially as we are now a bit extended once again.

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