Tuesday, June 30, 2009

Market Behavior Next Few Days Critical

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Healthy markets go up in the first four trading days of the month. This is even more of a truism when the month begins a new quarter. The quarter that begins on July 1 is also the beginning of the half year. Only the first trading days of the year in January are more critical in determining market direction. This January the market was basically flat, so the investing intent of the big players was indeterminate. The first few days of April saw heavy buying in an up market, confirming the rally that began in early March. The next few trading days should provide valuable information on whether or not the big players will keep supporting the current rally. If they don't, it's in trouble.

Yesterday was an up day with the Dow closing above its 200-day moving average for the first time in two weeks. Trading volume was anemic however, coming in well below average. Moves on low volume shouldn't be trusted. In the oil space, DXO also traded and closed above its 200-day moving average for the first time in months. Volume was also anemic. In contrast the Nasdaq has held above its 200-day for quite awhile now and unlike the Dow, its 50-day is also above the 200-day creating a bull pattern. The volume patterns for Nasdaq are also fairly bullish.

What isn't bullish are the technical indicators. The Nasdaq could easily hit a new high for the current rally in the next few days. If this takes place on low volume watch out. The technicals will not be hitting new highs creating negative divergences and possibly double negative divergences (a very bearish pattern). This would be particularly problematical if the new high was on July 3rd. The trading day before July 4th is almost always an up day, even in the worst of markets. Even in 2002, the Nasdaq was up 100 points that day. The volume was almost non-existent though, since the day before July 4th usually has the second lowest trading volume of the year (only the day after Thanksgiving is lower). In 2002, the big rally on the day before July 4th was followed by one of the ugliest sell offs ever. So a big rally that day indicates little about future market direction.

If the market rallies on Wednesday and next Monday and the volume picks up to above average levels, the market is acting in a healthy manner and the big players are still bullish. If it sells off on those days, but manages to rally on Thursday, this is a bearish pattern. Any drop on Thursday should be considered mega bearish. The monthly employment report will be released this Thursday instead of Friday this month, so watch for market reaction. The next few days should be interesting to say the least.

NEXT: Oil Storage, Stocks, and States

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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