After some very promising market action last week, Friday really threw the cat amongst the pigeons. Some poor data led to a huge sell-off, with the Dow down 261 points and the S&P down 32 – both closing near the lows for the day. Friday was a panic selling day with (NYSE) downside volume at 96%!!
This is a very confusing market with opinions divided between primary bull or bear market rally, possible double dip recession, euro stability or continued weakness and downgrades etc. While it seemed the bulls were starting to win and some “perma-bears” easing their stance, there is confusion in the air again.
Interestingly from a technical perspective were the recent appearances of the “death crosses” on some of the major indices. Whilst some commentators dismiss this event as unimportant it does have a decent track record for indentifying significant changes to major trends - if you care to listen it is suggesting intensified downward momentum!!
Since the end of April we have seen 11 panic selling days with +90% downside volume. Whilst this is concerning in itself, it the occurrence of 8 panic buying days with +90% upside volume which really makes this market difficult to call. It seems there is very little consensus out there with big money managers changing views regularly, desperate not to get caught out!
The majority of my guests remain bullish, recommending using the dips as buying opportunities, with a few outright bears suggesting shorting the market. It is at times like these I am glad I am not managing other people’s money and having to make calls on which way this market is going.
Maybe we should put our faith in Ben Bernanke & his fellow central bankers to continue to stimulate the economy and ramp up the printing presses should the recovery falter. If the past year has been a bear market rally with a primary bear trend still intact then we have a heavyweight battle on our hands. Bernanke & Co have powerful tools at their disposal and a desire to win at all costs but without the consumers on their side they could end up pushing a piece of string. Where this will leave us in a few years raises some interesting questions, but hopefully their actions will see us clear through these confusing times!
