G7 to the rescue
The market soared higher. The bulls built on Wednesday's midday surge, and blasted higher on Thursday. Sadly, volume dried up and the buying was not broad based. Additionally, and this is probably the more important aspect, SPX 1280 became resistance.
We went long on Wednesday since I expected the indices would get a short term bounce off support. Additionally, it was possible that a major bottom would form along those same levels of support.
While the indices did rally, I'm fearful that it will be short lived. The only thing I did like about yesterday's "bullish" day was that most indices formed inside sessions. An inside day occurs if the stock trades within the previous session's range, defined by the previous session close and previous session opening price. It indicates investor indecision that can often times result in a counter trend burst, which we would need to get today. I would like to be happier about yesterday's move, but I do not see it as a major bottom just yet.
The G7 announced they would team up to fend off speculative investment in the yen. It is almost unheard of, and only in times of absolute crisis, that the G7 will publicly join together and protect a member currency like they did for the yen. The currency quickly dropped 3.5% and has lost nearly it's whole gain this week.
Long term, a weakened yen will significantly help the Japanese economy. The country has very little domestic consumption, and it relies mostly on its export industry. A weak currency, which China is a perfect example, makes goods cheaper for importers, and it will quickly result in industrial growth, or in Japan's example recovery.
Japan needs to be concerned however, with the present, not the future. The nuclear crisis has not improved; it's worsened. It seems as though meltdown could occur at any time.
Trade has been very light this week. The lack of trading is the result of two things. First, I wanted the indices to trade a little lower before we entered. While we got that move (and did take a couple longs), I have not been impressed by the recovery.
Second, the crisis in Japan represents incalculable risk. Not only has the yen moved over 5% this week, the indices overseas moved 15%. The flow of news from Japan has been relentless, but it has constantly changed. One minute the nuclear reactor is stable, the next minute the reactors are deemed an imminent and catastrophic threat. There is no way I want to head into the weekend overweight any position but cash, and smart money will have the same mentality, which could make today a volatile session.
Watch List
The TradeMaster Daily Stock Alerts watch list is bullish again - and this time it's on commodities and technology. For a full list of our trades and video of our current stock watch list CLICK.
