Market Comments

On Wednesday US Markets ended the day mixed, while having mostly traded entirely with-in the range of Tuesday's trading action. Federal Reserve Chairman Helicopter Ben Bernake signed that with the most recently released economic data showing a slowdown in the American Economy the Fed is set for more rate cuts. (ADD moment here: What happens when things are still bad and the Fed has cut rates to zero? What ammunition do they then have, rates are already effectively negative if you factor in inflation...Yes, I am including Food and Energy here. I know that Cosmopolitan Magazine is trying its best to make all of the worlds woman anorexic, but most still eat) The Dow closed 9 points higher, ending the day at 12,694, the Nasdaq climbed just under 9 points to close at 2352.78, while the broadly based S&P500 closed down 1.27 points, ending the day at 1380.02. Volume was down slightly on both exchanges.
Those of you who follow my blog or have me managing your money know that so far this year I have approached the market with a large dose of caution, staying mostly in cash. This has allowed for the preservation of both capital and confidence when conditions change and are more favorable for putting the money to work.
When I'm looking at any market one of the most important things I look at is the news. Not what specifically the news was, or any type of play off that news itself, what I find to be much more important is the markets reaction to any news. For example, it takes a strong market to shrug off bad news and not move lower. I know a lot of people will spend their energy in that type of situation screaming and yelling about how stupid everyone else must be, but in the end they often end up being the one's broken and fooled. Over the last several days/weeks the market has encountered really nothing but bad news, however the general markets, and even the specific sectors effected by the news are more often then not shrugging and moving on, higher. Again, this is a significant sign of strength, one that shouldn't be ignored.
So, whats the plan of action at this point: Investor's Business Daily, for the firs period of time in 2008, has the market listed as being in a confirmed rally. This suggests that traders and investors should start building positions in stocks coming out of sound bases and showing good relative strength. Although William O'neil and IBD's work and method have strongly effected the way I approach the market, there are some significant differences. For example, I will not consider the market to be in any confirmed rally until the first pullback. To my way of thinking this is the first important test and it gives some more evidence in favor of the upside. The psychology of a bear market is dominated much more by fear then that of a bull market, one effect of this is that most of the biggest single day up moves have occurred during bear markets, and as a general rule bear market rallies can be very strong.
Over the course of the next few days I'll be building a lists, both of relative strength and weakness, to be prepared for which ever direction the market takes from here.