Stocks Stage WILD Reversal, Keeping Traders As Confused As Ever.

January 3, 2007

What a way to start off the New Year! Today, stocks showed us all why it is silly to have convictions. After gapping up very strong this morning on the back of some strong manufacturing data, stocks continued to rally. However, after the FOMC minutes were released, stocks did the exact opposite and reversed into negative territory. Thankfully, for the bulls, stocks found solid support at 3pm and rallied into the close, giving the DJIA and Nasdaq a positive close.

At the close, the SP 600 lost .2%, the SP 500 lost .1%, the DJIA finished up .1%, and the Nasdaq managed a .3% gain. Quite an incredible turn of events, considering the nasty reversal intraday.

Volume was MUCH higher, across the board. Today was neither accumulation or distribution but instead was churning. The big advance followed by the big decline and small changes in the index is a tell tail sign of extreme churning.

Breadth was positive on the Nasdaq barely and breadth was even on the NYSE.

The obvious news of the day was the FOMC minutes. I take the comments, “The downside risks to economic growth in the near term had increased a little and become a bit more broadly based than previously thought,” is the reason for the pain.

This has the sounding of a Fed starting to realize it might be too tight and that the slowdown is much faster than previously noted. If they start cutting rates that normally means bad things for stock prices. Hence, all the stocks that had to be sold today that I was long.

However, there were other stocks there to take the reign. So we will see how these perform. If these new buys start sucking it up right away then I know something really nasty might be right around the corner.

However, if this is it to the selling, then I have gotten rid of my laggards and have moved the money into equities that are rising. That is what you want to do. Move bad money into good money.

The other bit of news that caught my eye today was oil falling 4.5%. That is fantastic news, unless you are long oil stocks. I wouldn’t mind seeing $50 oil after our great state of Hawaii decided we needed to pay an extra .11 cents at the pump to pay for their nice SUV’s in the legislature.

Today’s market was one of the wildest days I have seen in months. I have not seen such a wild ride in a long time. Most traders think this is very negative and shows a top is in. If that is the case, why didn’t we selloff into the final hours. Why did buyers come in and support stocks at the EOD? They can’t be that bad if they did that.

The Nasdaq has three distro days and the SP has one. Another distro day on the Nasdaq, added with this day of churning, will have me very concerned. As of now the trend is still up and that is where I want to be; with the trend, going long.

I really hope 2007 does not act like this all year. If that is the case, I will be dead by the age of 28 (Feb 18th). I can not take this much BS work scanning charts and will have a heart attack the next time I have to do this much work.

Stocks Stage WILD Reversal, Keeping Traders As Confused As Ever.

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