Stock Market Commentary for March 15-19
Hey fellow traders,
Despite overbought conditions in the stock market, it continued going higher last week. Friday’s action showed some profit taking but overall, this market is telling us that it still has room to go higher. However, this coming week could be a turning point as we have a very important market moving event on Tuesday. We have the FOMC Meeting announcement on Tuesday at 2pm EST and this is a meeting where the Federal Reserve determines interest rate policies. It is expected that they’re gonna keep interest rates low for some time. More importantly, traders are waiting to find out about the balance sheet exiting strategy on their purchase of mortgage backed securities. This is important b/c the Federal Reserve has been pumping up the US Housing market. One thing for sure, this event is going to move the markets. Are the market going to continue going higher? We’ll find out after Tuesday.
If the markets do go down, I’m looking at buying some inverse leveraged etf’s in the financial sector such as SKF and FAZ. These etf’s reached their 52 week lows last week and if the markets falter, these etf’s will go up. Also, I am also looking at the broad sector inverse etf’s as well such as SDS which tracks the S&P 500 on the downside.
As I said last week, the markets are overbought here and the risk to reward scenario is not in your favor. There’s always a good time to buy but not right now.
Mike
Mike:
I’m interested in your opinion of the inflation/deflation debate:
1. The USA government has been artifically propping up the economy through deficit spending
2. Tonight Bloomberg reported that Moodys has issued a warning that both the UK and the US are in danger of losing their triple A bond rating, due to their rapidly increasing debt obligations
3. You mentioned in your blog that the US is considering ending their purchases of mortgage backed securities, which could trigger another housing downturn and put pressure on the financial sector
We could have a huge correction. The market commentators seem to be split in their views of the near term consequences. Some predict deflation while others predict inflation. I haven’t been able to figure out which one is the correct view. Have you considered these issues and if so, what is your opinion?
Thanks for your blog — you were right 5 out of 5 two weeks ago.
Robert
Hey Robert. Good to hear from you. I don’t really have much of an opinion on the inflation/deflation debate b/c I am not an economist. What I focus on is that these issues could impact the stock market and the stock charts will tell you what direction the market is heading. Right now, the market is clearly in an uptrend but overbought. When the market does correct and you can see the market breaking down UP trendlines then that is when the market could have a huge correction. Will we have the same correction down to the March lows in 2009? I highly doubt it b/c there is just too much money out there that needs to be put to work.
Thanks for your kind comments. Hope to keep giving you guys profitable picks in the near future.
Mike