Stock Market Speculation

This market is very difficult to predict. Every day, the market players react (or overreact) to some news that seems to be already obvious. For example, the news could be that housing sales are up. But, the stimulus plan requires buyers to close prior to June 30. It dictates that sales will be squashed into a shorter time frame than would otherwise be natural. What will happen in August when the news hits that home sales were lower in July than in June? You can bet the market will react as if it didn't know that would be the case.

Today, the market dropped 3-3.6% on disappointing jobless data. My guess is that everyone already knew that would be the case. But, yesterday President Obama guaranteed good numbers. He established a high water line that didn't even come close to being reached.

But, the market doesn't tend to drop two days in a row - especially when the first day's drop was this dramatic. You can't really count on any "normal" action but Mondays have been good for weeks. I'm guessing that Monday will be like a rubber band stretched to far by today's drop. There should be some rebounding.

Jon Markman pointed out that the market (S&P500) is setting up for a head-and-shoulder top which began in January 2010. The right shoulder "bounce" should make it to 1140-1150 if the pattern plays out correctly.

I'm just concerned that people are so disenchanted with the market and it's strong volatility that the right shoulder may not come about. I do believe the movements will continue to be choppy but I'm thinking down is the dominant direction.

I'm going to use SDS (twice the inverse of the SP500) to take advantage of any moves downward. I'll use stops to make sure the radical moves don't do too much damage in case the shoulder does appear. For now, I'm going to wait until some confirmation - probably until Wednesday of next week - before going "short" the market with SDS.

More later...