Monday, December 05, 2011

Probably another seesaw day for the market

Even if the intermediate-term market trend is indeed upwards ("risk on"), we could see occasional "correction" days where the trend seemingly reverses and rapidly goes the other way, but then within a day or two or three just as quickly makes up for any lost ground and then some. Traders and short-term speculators will continue to be mindful of seeking to "fill the gap" for the gains of Monday and Wednesday last week", in a process they refer to as "testing." That's normal even during a strong rally. As they say, "the market doesn't move in a straight line."
 
The equal probability paths for most days in the near-term are: 1) a pop at the open with some initial buoyant enthusiasm that flips to an evaporation of that enthusiasm into a decline through the day, 2) a decline at the open followed by a "throw in the towel" day of profit-taking, 3) ambivalent weakness at the open with a semi-volatile seesaw up and down but gradually evolving into a rise for the day, or 4) enough strength at the open that bearish traders and short-term speculators throw in the towel and go along with "the trend is your friend", at least for the day. I would vote for a volatile seesaw market, but the overall direction for the day is uncertain, even if the intermediate trend in up.
 
Negative or positive news can certainly bias the open, but not necessarily "rule" the entire day. Europe will continue to oscillate between "good" days and "bad" days in a seemingly random manner. Ditto for the U.S. economic outlook, with traders and short-term speculators (as well as the media) seemingly randomly flipping between optimism over the near-term Q4 outlook and the outlook for various points in 2012.
 
Today is another checkpoint for validating whether the rally from last week is "durable" and the gains can be held. Even so, the bulk of the rally was simply recovering the losses from the preceding seven trading sessions, so it does remain to be seen if this mini-rally is a true "risk on" trend or just short-term range trading.

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