Market Commentary – September 8th, 2011

A Look at Yesterday’s Activity:

The overall market moved sharply higher yesterday in a broad based move that saw basically every sector index I track move higher on the day.  The strongest sectors were the Banking, High Tech,  Insurance,  Broker/Dealers,  Transports,  Airlines,  Biotech,  and Cyclicals.  Oil was higher by $3.32 to $89.34 per barrel, and Gold was sharply lower by $55.70 to $1,814.90 per ounce.  Wheat was lower by $0.084 to $7.51 per bushel, and Corn was lower by $0.076 to $7.48 per bushel.

I know the Dow Jones Industrial Average staged an impressive 275 point rally on the day,  but I just don’t see any justification for the move. I didn’t really see any news to justify the move higher other than the German court decision stating that Germany can proceed with its part in the Greek bailout, but the court’s decision basically stated that every phase of the bailout would require authorization by the German parliament.  Considering that the German Chancellor’s party has lost every local election since agreeing to the bailout terms the idea of seeking authorization from the German parliament for every stage of the bailout seems to be problematic to me.  Basically I think at best it’s just kicking the can down the road, and the market basically cheered the avoidance of failure.  The only other thing I can think of to justify yesterday’s move is positioning by traders as they return from the holiday weekend.  If that is the case, then I expect the market to turn back south within a few days.

A Few Thoughts Before Today’s Open: 

Having just completed my review of the charts of the various indices from yesterday’s trading activity I found nothing positive to those charts.  Despite yesterday’s strong move higher, the vast majority of those indices only managed to rally to their 9-day moving average; a couple did a little better making it to their 40-day moving averages. But at the end of the day with the current chart patterns, I consider the 9 and 40 day moving averages to be points of resistance, not points of support.  There are really only 2 sectors that do not look horrible at this point in time.  The 1st being commodities which I see as being due to inflation concerns over another round of quantitative easing; and the second being healthcare which is probably recovering slightly due to recent court rulings concerning Obamacare.

However, the jobless claims numbers released today are well back above 400,000 new claims;  not good.  In fact, very bad.  Everything I am looking at is pointing to a slowing economy.  The people I talk to during the day are expecting worse!

In the short term I am expecting the Dow to test the lower end of its recent trading range; definitely a retest of 11,100 and most likely 10,719.94 on a closing basis.  Intermediate term,  I am expecting the Dow to trade in the 10,500 to 9,500 range.