Monday, November 2, 2009

Market Action was both Humorous and Predictable

On Saturday, Oct 31st,

If there is no more downside follow through on Sunday night Globex session, then it will retrace back up to the 1048 to 1052 range.

Today that is exactly what transpired, the high was 1049.50, within the range predicted on Saturday.

But here is the funny part of the day.When the previous low was broken down, many traders and even " trading educators" were projecting more downside in Twitter.

But there was no catalyst or news to keep driving the market lower !, so I started laughing and at the same time restraining my urge to warn these other traders to exit their short positions or take profits.

Then the market started to reverse, or a normal pullback in a intraday downtrend, and I was reading so many Twitter postings of " sell it here" ! . I could not contain my laughter, it just was so funny!.

The market retraced back up more than 62%. I saw it coming and even took a long position which resulted in a handsome profit.

Early in the session, stocks rallied on a batch of positive economic news: The Institute for Supply Management announced that in October, US manufacturing activity had grown at the fastest pace since the spring of 2006, with the ISM Manufacturing Index coming in at a reading of 55.7. Also, according to the National Association of Realtors, pending home sales had increased in September for an eighth consecutive month, showing a monthly increase of 6.1%. Furthermore, in September construction spending was also up, rising 0.8% (thereby matching the gains seen in August). In all cases, results exceeded economists' expectations.

President Obama commented on the health of the US economy today, saying that the dire situation in the labor market would likely continue 'for weeks and months to come', underscoring that hiring is always a lagging indicator in a recovering economy. Obama added that 'We just are not where we need to be yet.... We've got a long way to go.' The next scheduled report on the employment picture is scheduled for this coming Friday; market observers believe it might show the US unemployment rate exceeding the 10%-mark.

There was also surprisingly optimistic news from the automotive sector, with Ford announcing it had earned close to $1 billion in the third quarter. Much of this success was achieved by extensive cost cuts, as well as by the success of the US government's Cash for Clunkers program, which delivered considerable rebates and thereby boosted sales.

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