Wednesday, May 23, 2007

Recap

After a very strong start, the markets weakened as the day wore on and the major indices finished in the red near the lows of the day. Precious metals, aluminum and mining were the best performing sectors while semis and telecom were the worst. CYPB SRR FMT NFI LEND were some of the biggesr gainers on the day while VION NFLD TRMM CSS were among the big losers.

If one looks at a trading day like today where the market gaps up strongly and the S&P and Dow make all time highs and later, the market proceeds to fall apart over the last couple of hours, it may seem like a good idea to sell and go short. The problem is too many traders seem to have the same idea and the the market proceeds to rocket up the following day.

Greenspan is predicting a 'dramatic correction' for the Chinese stock market. Everyone is predicting a Chinese market crash or correction. If everyone thinks it will happen it could reduce the likelyhood of it happening .

The 10-year Treasury note yield hits its highest level since January on speculation that a rate cut will not be forthcoming.



The chart above shows that over the last 3 sessions the Dow experienced strong opens and weak closes. The closes were all below the open which in itself is fairly bearish. Under normal circumstances one would expect a pullback. However it will not surprise me if the bulls along with short covering proceed to take the markets to new highs tomorrow.

2 comments:

Gary said...

Coincidentally we are both thinking along the same lines about China. I posted a short piece on my China thoughts tonight.

IM said...

Yes there has been too much bearishness about this Chinese run. But again if sentiment becomes overwhelming bearish will it not become a self fulfiling prophecy ? Just something to consider....