Tuesday, November 29, 2011

A day of consolidation for the stock market

After the big gain yesterday, the big question for today is whether the market might open with a little pop but then quickly reverse into "profit-taking" as traders and short-term speculators "sell into any rally" for a loss for the day, or whether the market will open weakly or with a modest gain and then gradually build into another gain for the day.
 
Another factor to watch for is that whenever the market opens with a "gap" or big jump up (or down) as we saw on Monday, the "pros" say that eventually the market must "fill the gap" or decline back to near the bottom of that gap before a healthy advance higher can be sustained. That is not some law of physics or anything sensible, but it is a guide for how a lot of traders behave. It is one of their rituals, something to do when the market itself is not forcing a trend on their trading.
 
Ultimately, what happens today in the stock market is far less significant for true long-term investors than how the market sits a week from now after the short-term folks have pushed and shoved the market back and forth in unsustainable moves and then we will see where the net longer term money flows point the real trend, although even that will only be an intermediate trend and not necessarily a true long-term trend.
 
News about Italy and American Airlines are sideshows that shouldn't impact the overall market in a significant manner although any news can be used as an excuse by traders to add some momentum to their bias.

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