Market Chaos Now, Opportunity Pending

Includes: DIA, ERO, QQQ, SPY
by: Jack Bouroudjian

Folks, there are a number of situations that are creating chaos in the market right now, and it’s creating a very unique environment and experience for those of us who are exposed. What should investors and traders pay attention to when the market is in a chaotic condition like this?

First, it’s important to remember that we’re in a stage of end-of-month activity. Friday is the last trading day of the month, and because of T+3—the delayed delivery day for stock and bond transactions—a lot of that action is driving the markets. Portfolio managers both here and abroad have been making their final plays so they can mark them against their end-of-month balances.

Meanwhile, earnings remain strong. Today we saw even more positive earnings reports—Boeing (NYSE:BA), ConocoPhillips (NYSE:COP) and others all blew away the Street. These numbers are phenomenal, and as Daniel “The MoneyMan” Frishberg pointed out on this morning’s show, even with all the bad news surrounding the debt-ceiling debate, there isn’t a lot of selling pressure. This makes it very difficult for the market to decline—any selloff due to this debate would be a gift to be bought.

But even so, the debt-ceiling debate isn’t going away, and it will factor into the market. If nothing’s done—which I maintain would be the wrong decision—I expect that the market will react with a quick 3-5% dip. And I’m inclined to agree with Daniel that that is a dip to be bought. I don’t see these strong earnings changing before the end of the year—these companies understand the global growth story that’s taking place, and they’ll continue to take advantage of it.

I’m also keeping an eye on the relationship between the Euro and the dollar. I’ve talked before about the way the exchange rate is a discounting mechanism for European portfolio managers. When the Euro goes down, stocks go down, and vice versa. Once we identify the leak, we can look for opportunities to strike.