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Is The Friday Sell Off A Thing Of The Past?

Jan. 31, 2011 10:14 AM ETBTU, PCXCQ
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 This morning the major stock market indexes are all starting the session higher to begin the day. The talking heads in the media are now saying how everything is fine once again in the world with the exception of Egypt. The Asian markets traded mostly lower last night with the lone exception of the Shanghai Index which was higher by 1.38 percent. We all know the market loves to see the Chinese market higher because many economists believe the Chinese economy is the growth engine of the world. All in all it looks as if the media has forgot the bloodbath market that took place before the weekend on January 28th, 2011.

Rarely will the major stock market indexes such as the S&P 500 Index, the NASDAQ Composite, and the Dow Jones Industrial Average decline sharply ahead of the weekend. However, the market declined sharply on higher volume last Friday. Traders and investors should not write that type of decline off so fast. This is a market that is being inflated every single day by massive cash reserves from the Fed's quantitative easing program. Traders have been buying almost every dip on a daily basis. Eventually, stock markets need to have pullbacks. If stock markets do not pullback at some point they will simply be on a collision coarse when the manipulation stocks. Look what happened in 2007 and later in 2008 to all the major indexes.

This morning Alpha Natural Resources Inc.(NYSE:ANR) has bought out Massey Energy Co.(NYSE:MEE). This news should be bullish short term for the coal sector in the market. Traders should keep an eye on stocks such as Peabody Energy Corp.(NYSE:BTU), James River Coal Co.(NASDAQ:JRCC), and Patriot Coal Corp.(NYSE:PCX). These stocks could trade higher in sympathy to the Massey Energy takeover. The Market vectors Coal ETF(NYSE:KOL) can also see a positive reaction to the news and may very well trade higher today.

As for the overall market indexes it is prudent to allow this market to prove itself. Anytime markets sell off from highs on volume traders should expect that the selling may not end so quickly. Therefore, despite this mornings sharp gap higher the early rally may not last very long. There is usually a bigger reason for declines in the market when they occur on heavy volume.

Nicholas Santiago

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