Sunday, May 16, 2010

Sunday Speculation

Well, where does the market go from here near term?

I don’t really know, but, I do know that the bulls and the bears have a fight on their hands. While that battle wages we will remain on the sidelines as spectators. There is an old Wall Street axiom: “The trend is your friend”; and clearly no friends can be found at the moment.

Allow me to speculate, just for fun of course, and paint a picture of the upcoming battle. A lot of market participants are worried that we could see a repeat of the extreme volatility the market experienced on May 6th and are more likely to sell on bounces. On the other hand, some traders feel they missed out on a bargain during the sharp decline and will want to buy on the dips. As a result the market bounces up and down with last week’s high acting as resistance and the low set on the 6th acting as support. The market will be stuck in a trading range for a period of time, going sideways until the market breaks out and the winner emerges.

If a scenario like this plays out we will take our cue from the ultimate breakout of that trading range.  As a new trend reveals itself we will be prepared to act.

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