Market Report – September 30, 2007

Monday, October 1, 2007

Filed Under Market Snapshots 

The third fiscal quarter ended on Friday on a bearish note, although US equities are once again flirting with lofty all time highs.  The lagging volume and consolidating technical pattern of all the major markets, coupled with a slight move to the downside on the last day of a bullish quarter could lead some to believe that the approaching apex of 14,024 in the DJIA could be a very convenient wall of resistance and an impetus of a substantial retracement.  The fascinating thing to me is that the ambivalent perception of the impact of forthcoming economic data, continuing debate over the severity of global credit issues, a totally devalued dollar, astronomical energy and commodity prices, and totally undefined corporate earnings are meeting at a plexus right at our ALL TIME highs.

One could easily hold a position that the major averages are not really trading at these levels at all, simply smoke and mirrors resulting from band-aid policies of liquidity infusion and interest rate cuts.  With October a historically foreboding and bear friendly month, this may not be the time to speculate with any long directional positions that are not completely hedged, with locked in loss parameters (i.e. appropriate options strategies/spreads).  From a technical aspect, the DJIA recent bull activity seems a bit overheated, and the Fast Stochastic %K has crossed over the %D moving down from overbought areas.  Meanwhile the SPY, or spiders, the tradable index of the spx, has formed a fairly symmetrical tightening triangle on constricting volume and could be another case made for some downside.  Unfortunately, if you look hard enough, an indicator can always be found that will make you a bull or a bear in any market.Final settlement prices for the week on Friday were as follows: DJIA, 13,895, + 75.44; COMP 2701.50, +30.28; SPX, 1526.75, +1.00.  Two other interesting pieces of information are that the advancers vs. decliners on the NYSE almost fell to parity last week, and Russell 2000 small cap was off 3.4 %for the quarter after advancing the last four quarters. Additionally Crude closed at $81.66, -.04 for the week and gold traded up over $11 per ounce to close at $742.80. The CBOE volatility index was of f 1.04 to close at 18.00 for the week, and the put/call ratio heated up to a bullish 153/100 as opposed to last week’s 130/100, although that is a suspect indication of institutional bias.

The week ahead sees the ISM index for September to be released at 10 a.m. on Monday, August factory orders will be stated at 10 am on Thursday, and Friday will see employment data and consumer credit numbers at 8:30.  Of course this week, as stated before, will be quite interesting as this fundamental data could have to be digested by the markets at historic technical levels.

Gregory Wolfe, The Options University
September 30, 2007

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