It is well known that for quite some time now the Dow has vacillated between approximately 9500 and 10,000, waiting I think for a more definitive read on the economy and where we are going. On Thursday, October 29, the Dow had a significant rally, not surprising with the 3.5% GDP growth rate announced then. However, as market participants thought about the growth rate and how much of it was due to the federal government’s thumb on the scale in the form of the transient effects of the cash for clunkers program, the tax credit for first time home buyers, and the stimulus program, they realized that real unadulterated growth was probably more on the order of 1%, with no prospect near-term for truly improved employment figures.
The next day, on Friday, October 30, the Dow tanked for almost 250 points, largely, I suspect, at the hands of traders. More broadly viewed, that drop might be one of two things: gaining wiggle room to rise again without sailing too far beyond 10,000, or recognition that this market is too bloated and a correction should start now.
My take is we will continue to dance within the 500-or-so-point band, at least for a while, waiting for yet more news, good or bad. The market believes the new data are too little to act on. And I say that, realizing that from my point of view it is much easier for me to make money in the market, without becoming a day trader, if the market trends one way or the other longer term.