Sunday, June 25, 2006

Late night thoughts, June 25, 2006

I mentioned in my last post that the S&P seemed to be tracing out a symmetrical triangle in the past week or so. The direction of resolution of this triangle is unclear, although the magnitude should be sizable, probably 30-40 points at least. The following are the things I've been thinking/reading about regarding the direction of the general market.

  • Bill Cara has turned bearish for some time now. Last Friday, he posted a link to Martin Pring's bearish report. Pring is one of the best market techniticians out there.
  • Frank Babara at Financial Sense Online continues to make the bull case based on market sentiment.
  • If you're wondering what a downside break out of the triangle may be like, look no further than the $BKX, Philly banking index, which is a bellwether of this market.
  • My search for data on mutual fund cash levels led me to this page. I'm not rushing to the same conclusions but I made note of the fact that mutual fund cash levels are still at historical lows as of the end of April. I don't believe we've seen mutual fund selling yet.
  • Next week is the end of month as well as the quarter. I'm sure mutual fund "window dressing" is on many trader's mind. June 12 was the Monday after the weekly close of the S&P below the 200 dma and we saw heavy selling. If the S&P remains below the 200 dma at the end of next week there may be a wave of mutual redemptions coming. Now how does that jibe with the low sentiment readings presented by Frank Babara?
  • Of course, there's the Fed meeting next week. Now I'm hearing the call for a final 50 basis-point raise. I doubt it'll happen, but the persistency and resourcefulness of the "once and done" crowd has once again amazed me.

I want to make it clear again that these are just the things I'm looking at. No trading idea or advice is remotely insinuated. As always, do your own due dilligence. Good luck and be safe!