1.15.10

1.15.10

            After such a dramatic run-up off the March low the market is probably due for some profit-taking and at least a short-term pullback. One indication is that so far the market is not responding positively to even big earnings surprises (like Intel and JP MorganChase’s) as the important fourth quarter earnings reporting period gets underway.

          A short-term correction would likely convince the sideline money that it has it right this time, and even more reluctant to come off the sidelines. And after two months of low volatility, with big daily moves in either direction absent, a return to frequent daily moves of 250 and 300 Dow points is also likely, and not conducive to creating investor confidence. So the next few weeks could be a testing time for both bulls and bears.

          The absence of public investors has not prevented a strong bull market, rising on very low volume, as financial publications have been noting. On average not much more than one billion shares have been trading daily on the NYSE for some time, compared to close to two billion in previous years, and as many as three billion daily in some periods when investors decide it’s time to really pile in.

          So the beneficiaries of the new bull market have primarily been professional traders, and professional investors at hedge funds, banks and other institutions. In fact, banks have been reporting large profits due primarily to their trading and investments, even as their loan losses pile up.

          There is a ton of money pulled out of the market, on the sidelines in money market funds and bonds. It was hoped that the new  year would see volume pick up with some of that sideline money coming in. But so far it hasn’t happened.

          There will be a good sized dose of earnings reports released during this next week. It will be watched more closely than normal to see if weakness hits stocks showing better than expected results as it did to Intel and J P Morgan on Friday.

          We remain 100% in CASH.

Till next time

The MTA Staff