A News Driven Market

After declining sharply on Thursday and early Friday the cash S&P500 then rallied to close higher on Friday’s close. This price action caused a downtrending day on both days. I have been expecting a retest of 1234 and have gotten it. Expectations were for a successful retest. Have we gotten that? Well the futures are saying so. They are literally surging at 5:30 am Eastern Time; up 36 points. Players obviously believe that the U.S. Government’s bailout of mortgage market GSE’s Fannie and Freddie is a “great” thing. Maybe in the short run.

I am getting off topic here but when events of this magnitude occur I like to see what the bond market participants think as their view often has a longer horizon. Bonds are selling off anticipating huge U.S. borrowing needs. This is raising interest rates which are usually negative for stocks. I have to conclude that the equity markets are too enthusiastic on this news and that later on this year we will likely see new lows.

As has been stated recently; “In any event, I do expect the next intermediate move in the cash S&P500 to be bullish. But it won’t break 1440 and will likely be over in about a month. A target? Let’s go with the converging medium and short moving averages on the monthly chart at about 1380.” My only modification to that statement due to the GSE news is that the rally might possibly have longer to run in time; but certainly will be over by Christmas.