Friday Outlook: Market Roulette

Yep, it was that kind of day Thursday. Was there any good news to account for an up day? Absolutely nothing, unless you think the GDP data falling a little less than expected was something to place bets on.

Nope, the market is just oversold and this is the end-of-month prop job mutual funds and a few others need.

I like it since it reduces oversold levels and risks. It’s what we’ve been expecting and why we’re in cash.

What’s next? An election. Despite negative investor sentiment (just my guess so everyone calm down) toward an Obama win which seems likely, a clear win by anyone could launch a further rally and a brief honeymoon period.

So desperate are bullish tape painters they ignored San Francisco Fed President Janet Yellen’s statement that “…recent economic data is deeply worrisome and the economy is likely to contract significantly in the fourth quarter.” Sure, that’s really bullish!

I was day-trading most of the day and got pretty bored with what was light volume action until 3 PM when some bears emerged from their lairs and slammed indexes hard. A battle royal ensued between bulls and bears until the final minutes when bears were vanquished. “Stick Save” bulls!

A special thanks to subscriber and blog reader David Hurwitz who tries diligently to get me “correct” volume and breadth data since Yahoo Finance data is usually off. Today, for instance, they have advance/decline data flip-flopped. Anyway Dave is pictured here and his important data is directly below his picture.
























































Something to consider as a possibility is to be long TIPs, given the 5-year issue is yielding more than the conventional treasury of the same maturity. At the same time you may wish to short the treasury security on the assumption that future inflation is baked-in to future bond prices [lower] given large supply issuance. Further, the Treasury may be loathe to issue TIP securities given their understanding of future inflation prospects based on current inflationary policies designed to rescue the economy.

The only ETF available is the iShares TIP which has a maturity duration of 6.65 years as of 10/28/08. You may pair it against IEF (iShares Lehman 7-10 year ETF) or use PST (ProShares Ultra Short 7-10 year Treasury ETF). A more aggressive but poorly matched issue would be short TLT (iShares Lehman 20 + year Treasury ETF) or TBT (ProShares UltraShort Lehman 20+ year Treasury ETF).

With leveraged issues you might choose to use half positions if you seek exposure without the added risk.

This idea is something the ETF Digest is evaluating and is not yet a recommendation.

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Comments

[Here's a th...:]

David, I enjoy your comments but please cut down on the charts

2008 Oct 31 10:52 AM

[dc1:]

Hi "Here's a thought." David's posting is about charts. To help you get up to speed on charting check out the website, at the top of one of Dave's charts: stockcharts.com. Lots of free info on markets and charting. Good luck.

2008 Oct 31 03:21 PM