Market Notes – 9/1/10

Market Notes
Wow! I certainly did not see today’s rally coming—who would have thunk good news in the manufacturing sector had the ability to add such cheer to the market’s morning joe? The real problem with this market is that there’s nothing to weigh it down (read: volume) so that any tiny shift in the breeze is amplified out of proportion.

The bulls may be cheering today’s rally but the extremely low closing Trin (0.40) typically presages a decline so don’t be surprised if the market gaps down on the open (barring another unexpected economic surprise!). If you look at the charts of the major averages, you’ll see that they have been trading in a range for the past several months: the Dow Industrials has been bouncing between the 10,000 and 10,500 levels and the SPX between 1050 and 1125.

This channeling behavior is a direct result of the conflicting economic news—the economy is slowly recovering/the economy is headed for another downturn. We’re on this bull/bear teeter-totter and any piece of news (jobs, manufacturing, consumer sentiment, housing, etc.) that favors one side of the argument is going to temporarily move the market in that direction. If you don’t own a crystal ball, the best that you can do is to go into swing-trading mode if you’re just itching to make a trade, or sit on the sidelines and wait until one side is declared the victor.

No portfolio today
Because of the huge market rally, no new Blue Plate Specials portfolio was initiated today. If the market rallies again tomorrow, the short portfolios will be covered and if the SPX is trading above its 40dma, a long portfolio of ten stocks will be selected.

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