Subprime Concerns Persist, But Market Holding Firm

by: Tate Dwinnell

With a slew of economic reports, a fed decision and end of quarter trading, last week was expected to be a wild week of trading - which it was, with volatile intraday swings throughout the trading week. However, bulls and bears just chased each other's tails around and the net result was little change for the week.

Subprime concerns continue to crop up with news of a couple Bear Sterns hedge funds near collapse due to over exposure in the sup prime market. Any additional news about the subprime meltdown spreading to the top of the food chain is a concern that will no doubt be watched closely. My feeling is that it's going to get much worse before it gets better.

Tempering the subprime concerns last week was another decent inflation reading on Friday with the PCE core deflator rising just .1% in May, bringing the year over year inflation reading to 1.9%. This is at the top, but within the Fed comfort zone of 1 - 2%. I just wonder when the Fed is going to place more importance on energy and food prices which have typically been excluded due to their volatility.

From a technical standpoint, I'd call the action of last week nearly neutral. On the bearish side, four of five trading days resulted in a close near or at the lows of the day. Several weeks ago, traders were looking to buy the dips, but the theme now is that traders are looking to sell the rallies.

On the bullish side, the bears continue to have trouble exerting any kind sustained control as the Dow was able to reclaim support of its 50 day moving average and the Nasdaq continues to hold above that level. All in all, the market seems a bit uncertain about which way it wants to go at this time, and you know what that means for you the successful trader . . . let it sort itself out without making large bets in either direction. Don't expect the market to reveal many clues as to its direction after the holiday week. If you're thinking of vacationing for a few weeks and watching the market from the sidelines, now is a great time. :)

If you are more of an active trader like myself, consider locking in profits a bit earlier and be quicker to cut losses.