Tuesday, October 2, 2007

Entry For October 1, 2007

Though as i do not like to beat my chest, but i believe my technical analysis was pretty decent. Despite hesitating fundamentals the equity markets rallied quite significantly. The Dow broke through 14,000, I believe the only significance only being in that people were psychologically ready this time to follow through instead of immediately dragging down the index by taking mass gains. I believe the Dow will add to the bullish tone in the markets fueling a break through resistance in the s&p 500. Volume and momentum don't warrant this enough alone to break through. But, people jumping on the bull train will be able to accomplish this. I'm sure there will be some people who are going to take gains on the break or on resistance, when this occurs I only see steady growth, as once the break occurs it sets up a nice support line at around 1555. With the current volume, it is about the same as the previous day and not a significant or abnormal spike though as volume will dwindle steady increases in price will occur. Looking on the 2 year chart this is a similar dip that occurs where the 50 SMA crosses under both for about 3 months and thing finally crosses back on top followed by a nice rally for about a year (one can consider march 2007 to be a whipsaw in the broader prospective).

One thing i would like to mention about the economy and bond markets tonight...
I feel that this cut will spur inflation that may not be huge but it will be unexpected. All the recent information has been lagged and will in turn lead to what my belief to be increases in the CPI and PPI. Though i mentioned before there will be a retreat on the yield of interest rates, if my prediction is correct, a sellout will occur and yields may go back up...

To confirm this on the technical side:
Longer term rates (5, 10, and 30) say that there is still upside momentum for about 2-3 months in my opinion. That is when resistance will tend to kick in. Shorter term rates may react sooner... So by the next quarter or so, inflationary pressures may increase by the next quarter or possibly sooner. ..

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