Constructive Pullback

The stock market finished down today but it held its own.  For a while, it looked as if the market would get worse and worse.  But, the volume was very light and it looked more like everyone was in a wait and see attitude.  There’s definitely not the active selling we saw in October & November.  When I see days like today that a few weeks ago would have fallen apart at the close, I have to be a little more bullish.  The market has shaken off bad news pretty well and when it has the chance to plummet, it rallies back.  If you notice, the rally at the close was on pretty heavy volume.  We saw a nice move off the November 21st low and now we’re seeing a weak pullback.  Remember a couple of weeks ago I said I’d be looking for a weak pullback and then another round of buying.  If we get that on heavier volume and break through the 50-day moving average, I believe the rally will extend for a few weeks at least.  

The decline in the U.S. dollar that I wrote about last week continued today as commodities rose.  With the U.S. dollar being the lowest yielding currency and the Euro being the highest yielding currency, you’re seeing more selling of the dollar, more buying of other currencies, and metals starting to perk up.  Gold & silver both rose.  I’d like to see them get a little more traction but this move may be for real.  And trust me, the U.S. is happy about the dollar weakening.  It’s how we’ve been growing over the past few years and will continue to grow going forward.  Now nobody including me wants to see a pathetic plummeting dollar.  But, a relatively weak dollar I can live with.  It is getting money going back into global growth.  Remember, at this stage in the game, the Fed is worried about deflation, not inflation.  So, what they want most right now is reflation in stocks, homes, commodities, businesses, etc.

The reason I’m slightly more bullish (just slightly) is because we’re seeing the bad news and bad numbers start to at least slow down.  They are still bad and will be for several more months.  But, the rate at which some of these things are falling is better.  Don’t get me wrong, my allocation to stocks is still very small.  But, I’m picking certain stocks in certain areas to invest in.  As the market proves itself to me a little, I buy a little.  We’re re-kindling our relationship you could say.  The dollar reversing could be just a short-term move, but if it’s not, you’ll see more upside in commodities, metals, etc.  Because of that, I’ve been buying securities levered to a falling dollar.  It’s somewhat of a hedge where I get some exposure there but if the dollar starts strengthening tomorrow I’m not hurt overall.

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December 2008
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