Volatility, but No Sustained Trend

George Brooks  |

Yesterday the U.S. dollar slumped, prompting a bounce in commodities and the stock market.

That, and the reverse of that can generate volatility in coming weeks. Technically, it looks like we have enough of a short-term base in the DJIA 12,550 (S&P 500: 1335) area to support a further up move. But there appears to be some formidable overhead supply around DJIA 12,800 (S&P 500: 1360) level.

Brooksie’s Daily Stock Market blog: An edge before the market opens.

Friday, May 13, 2011 6:20 pm Thursday eve - EDT

DJIA: 12,695.92
S&P500: 1348.65
Nasdaq Comp.: 2863.04
Russell 2000: 847.53

We may be entering a news whipsaw environment, where stock prices drop, then bounce, then drop in face of fluctuations in the U.S. dollar, commodities, Fed statements, etc. Just about the time one thinks a trend is underway, it reverses.

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I think the debt limit debate will move to center stage next week, primarily because heated debate will make good news copy and garner headlines, with the increasing concern that an agreement will not be reached with the result being a “default” on the nation’s debt.

While it may appear by the hype that a default could happen, the consequences would be dire and political suicide for Congressional members, therefore I expect an agreement to be reached.

What am I saying here ?

I expect a volatile market, which will challenge even the most nimble trader to clip profits. Definitely a risky market intermediate-term. None of this suggests the market can’t punch to new bull market highs, it’s just unlikely.

Initial Jobless Claims were reported yesterday, showing a decline of 44,000 jobs for the week ending May 7, on target with projections, and about the same as the week before.

Retail sales rose through April 11 at the slowest pace in nine months, suggesting the bite of higher gas prices is taking hold.

A May 9-10 Bloomberg survey is interesting. It indicates investors in both commodities and stocks are moving into cash. Less than half surveyed expect the S&P 500 to advance over the next six months; some 40% expect oil prices to drop.

A contrary investor may take that news as a weak “buy” signal. A stronger buy signal would be if the individual investor was stampeding out of stocks and into cash. Not so. We need to hit an “ouch” point on the way down for that.

George Brooks

NOTE: I will be away Friday to Friday, but will try to post if necessary.

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