As I had mentioned in my Mid-day update;
The market is bouncing a little higher this morning as investors begin to position themselves for the next move up. The ideal scenario would be a little more downside action to about 10,800 on the Dow and 1240 on the S&P. At these levels the market would have enough of a pullback to attract some volume, and provide a springboard for a re-test of the April highs
The market was up about +55 points at mid-day, reversed, and closed down -71 points. Don't view these comments as rocket science, or a negative, instead look at it as a process the market needs to go through in order to reach a short term bottom.
Personally, I was glad to see the market give way to more selling, and not continue delaying the inevitable. On June 5th I referred to the snapback rallies as "meaningless rallies and a waste of precious time". The sooner we can get through the selling, the quicker we can play a summer rally.
The mood on Wall Street is getting gloomy. This is a good thing. Recently, the President of the Atlanta Fed expressed worries about inflation, and he was the fourth central banker to make comments week. It looks as if the Fed is trying to talk down inflation. This strategy may work for a while, but eventually the market will demand more than tough talk.
For the short run, tough talk is having an impact on energy and basic materials stocks. Today the Energy Department said crude oil stockpiles increased and gasoline inventories rose for a sixth straight week. In addition, Gold fell to a six-week low.
The markets recent nervousness is based on fears the Federal Reserve will continue to raise interest rates to fight inflation. My best guess is the markets will be pleasantly pleased by what the Fed does at the end of the month.
We continue to believe the best entry point remains in the 1240-1250 area on the S&P, and 10,750- 10,850 on the Dow. Hold on to your hats, we may see these levels before the end of the week.
