A Look at Friday’s Market: The overall market moved slight lower on Friday in a relatively broad based move that saw the majority of the indices I track move lower as well. In the commodities markets Oil was sharply lower by $2.14 to $106.70 per barrel, and Gold was also lower by $12.40 to $1,709.80 per ounce. In the grain markets Wheat was higher by $0.104 to $6.744 per bushel, while Corn was higher by $0.010 to $6.55 per bushel, and Soybeans were higher by $0.104 to $13.33 per bushel.
A Look Towards Monday’s Market: In looking at the charts from Friday’s market activity I noticed three (3) things that really stood out. The first thing I noticed is that a majority of the sector indices I looked at had negative chart patterns. This is generally a precursor for a broader market pullback. The second thing I noticed was very few of the stocks setting new yearly highs had average daily trading volume above 1 million shares. To me, this indicates that the larger companies are not participating as much in the recent market rally. The third thing I noticed was the majority of the stocks with heavy volume looked to be moving lower. This is generally a bearish trading signal.
My thoughts continue to be that the market rally that started last fall is running out of steam. I think that a lot of the activity that contributed to strong 4th quarter Gross Domestic Product (GDP) number was the result of business decision makers taking advantage of a tax and regulatory environment that they are concerned will change in 2012. As a result, I am expecting a decline in economic activity, and GDP, starting in the late 1st quarter of 2012. Sooner or later that will translate into a movement lower by the overall market. I truly wish I am wrong, but I just cannot seem to find anything with any strength to it that can get me to change my mind.
The Bottom Line: I think there is still an upward bias to the market, however I am looking for at least a short term pullback to start in the near future. As a result, I am taking a more defensive position and looking a covered puts for today.