Exposing Ideas to the Envelope of Serendipity

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Tuesday, December 1, 2009

Listen to the Market

From the look of the overnight and pre-market action in the Forex and futures markets, it looks like the overhead gap left behind from the Thanksgiving plunge is likely to get filled in early trading. While the Dubai debacle has certainly succeeded in creating its share of volatility in the markets the past few days, at this point the major indices remain near the year's highs and holding support. If there is one defining characteristic of the rally off the March lows, it has been that corrections along the way have been repeatedly shallower and milder than anticipated. Corrective action has been achieved by sideways consolidation and very mild pullbacks up until now. At this point, it's too soon to conclude that this time will be any different. It will be important to watch how the indices handle the gap fill-- will it be mission accomplished and time to head back down, or will we blast through and return to challenge the highs?

The dollar continues to unravel, Dubai for the moment is diminished, and many leading stocks are trading just off their highs. There is major resistance overhead, but that alone is not a reason to be heavily positioned on the short side. Until the market starts breaking down with conviction, the trend is intact.

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