Today Papa Ben (Ben Bernanke) gave a speech saying “inflation was on track to moderate in the coming months”. This information, along with lower oil prices, and the hope of a buyout of investment bank Lehman Brothers, boosted the market putting the Dow Jones up 183 points at 3 PM.
Therefore, once again, the Credit Crisis, the US-Russia tension, and the crippled Financials are put aside for a mini rally at Wall Street. We see again that the money managers are taking advantage of this current speculation and covering some of their losses and locking in profits.
In order to speculate about what will happen Monday or Tuesday, we shall take a look at the market movement of the Down Jones in the last month.
DJI Market Movement in the Past Month
As we can see in the chart, the Dow has been in a consistent up and down cycle every two days or so for the past month. There has been a bunch of one or two day rallies that is immediately followed by a day or two that completely erases the gains.
The concern to be addressed is that these rallies have no support and have occurred in the past on the basis of “Ooil goes down, stocks go up” or similar reasons. Thus, what happens is that Wall Street puts asides facts such as Freddie Mac and Fannie Mae and rallies up the market. Then, the next day everyone remembers how the two biggest mortgage lenders in the country are falling apart and the Dow goes down 130-150 points.
A similar event happened today. The overall market was up and the Dow finished up 190 points on no true support. A speech from Bernanke saying that inflation is expected to cool down and talks about Lehman being bought is not enough to rally the market 180 points and sustain it.
What will probably happen is that there will more bad news from Freddie and Fannie early next week, and more media hype of the tension between the US and Russia which will bring the Dow swinging down and erasing the gains from today. I expect this to happen either on Monday or Tuesday.
Therefore, the goal is to short the blue chips and the financials because the same way they swung up today, they are going to swing down early next week. Hence, don’t be fooled by Wall Street and their tricks.
{ 1 trackback }
{ 0 comments… add one now }