Weekend Analysis for Fri May 16th 2008

 

We saw a strong selling even take place that began just after 10am eastern time with the release of the consumer sentiment report which showed the extreme pessimism that is out there. The lowest reading you'll find at just about any time in our history. To be blunt, people are hating life and that's so incredibly sad but if use that to understand where things may go, intense pessimism is good for the markets. People feel they'll be losing their jobs or at the very least that their jobs are in jeopardy. They hate what they see with inflation when they go food shopping or have to pay insurance premiums or just about any other type of necessity to living as they've grown accustomed to. They hate their mortgages for sure and their car payments and with all of this hanging over their heads, they've about thrown in the towel. Again, sad but again, positive for the future. So at least we can take something good out of it all. Their lives are likely to be much better a lot sooner than they would be expecting right about now. That'll be a great day for all.

 

The market did pull back today, especially on the Nas to where it looked a little tenuous for a while about what we had just accomplished but even small breaches aren't necessarily a bad thing. The bulls did come in where they had to so we can take something from that but as I have mentioned earlier in this letter, some negative divergences are still out there thus we need to be on guard for some potential short term selling. However, the selling earlier on allowed for things to cool down and thus it's possible the market is using the negative divergences as a pause to refresh only. The next couple of trading days will tell that tale 100%.

 

It was great to see the housing starts number come in well ahead of expectations. Maybe this is what the market saw months back when it put in its bottom. You can't see it but the market always seems to be able to do so. Heavy construction is on breakout and the housing stocks are all on breakout as well. It may be temporary but the charts certainly aren't pointing in that direction. With materials and cyclical's doing well it is most definitely a positive sign for things to come down the road although we all know the road isn't necessary just all good. Lots of bumps along the way. It's good because it helps keep folks mostly pessimistic and doesn't allow for too much complacency. The bottom line is many dead areas of the market throughout this most recent bear are alive and kicking. They were dead even when the market was good so it's a great sign to see them coming back and doing so with confirming technical's.

 

Slow and easy here folks until those small negative divergences go away. We will use weakness to buy. Lots of good bases setting up. Strong breakouts abound. One day at a time. Things are still looking good. We're still on a buy signal.

 

Peace

Jack