Market Thoughts 4.5.2010

All market indices rose to new 52 week highs with commodities leading the way. Oil was up $1.75 to 86.64 and gold hit 1,132 as everyone jumped on the reflation trade. Even perennial under performer natural gas rose today. One thing to note today was the anemic volume which set a new low for the year. In the S&P 500 tracking index only 105 million shares traded vs an average of 150-160 million. The big news of the day was not in the equity markets but rather the bond market where 10yr and 30yr yields climbed higher. In my opinion this is the only problem for the equity markets right now. As yields rise, stock market P/E's generally decline as people decide to take the easy money and buy bonds rather than risk their money in the market.

The only thing I don't like about this market is the extreme amount of momentum trading (market goes straight up without stopping). The market remains vulnerable to a severe correction with the RSI indicator above 70 for 3 consecutive weeks. Even if you are bullish (I currently am) I would not be buying at these levels considering that the markets are extremely overbought in the short term. That being said do not under any circumstances be short this market--you will be killed (like me shorting oil).

Good luck and happy trading

Black Swan Insights


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