Two Strikes on Selling the News

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MARKET WRAP UP 11/03/10

With the mid-term elections last evening, followed by the FOMC announcement today, the “sell the news” crowd had every chance to see these perceived market-friendly developments faded in stocks. Instead, equities closed at multi-month highs, as the S&P 500 finished up 0.37% to 1197. Although today was far from a potent breakout, the type of price action that we have seen over the past few weeks continues to put bears and underinvested bulls in a tough spot. While the rally since 1040 on the S&P has been steep and unforgiving to everyone but the most steadfast bulls, the market has strongly resisted a correction in price. Rather than pulling back 5% or so, stocks have simply drifted sideways since the middle of October. In essence, the choppy, churning action has amounted to a correction in time.

With the employment data set to be released on Friday, those who are positioned for a selling of the news have one last, great chance to see it come to fruition. While it is most certainly true that the number of market players describing themselves as bulls has skyrocketed, there is a distinct possibility that many of them are underinvested and desperately seeking a pullback in order to load up on inventory. As I have been discussing for quite some time now, a sharp correction will inevitably materialize. However, whether it happens now or at 1220, or even at 1250 on the S&P is anyone’s guess. Thus, being long or in cash are the only two viable strategies that I see.

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