Market Comment - October 26

(Marco Bonelli) Taking the European issues aside, yesterday's orderly and unexciting sell-off could easily be the famous pull-back to buy the dip:
A not excessively negative market breadth, technology and consumer stocks showing relative strength throughout the day, multiple attempts to buy the dip earlier in the day (despite a cancellation of a meeting of the finance ministers at today's EU Summit), the NDX falling back into its 2300-2375 trading range and also closing a small gap from beginning of the week at 2336 and the Dow Jones, SPX, Nasdaq Composite and NDX magically pulling back to their September highs (11717, 1230.7, 2643.4, 2339, respectively).


The continued light optimism regarding the macro-economic outlook may support investors' decision to jump in now before the rally resumes and the performance pressure becomes unbearable. Better September Housing Starts and October Philadelphia Fed Index from last week gets joined by bottom-line quite strong September Durable Goods Orders while comments from UPS ("...continue to see a slow growth economy, but not as bad as earlier anticipated..." / "...see Q4 volumes picking up...") mirror the cautious optimism already expressed by FDX and a number of industrial corporations, CAT probably one of the most prominent ones. Having said that, although Q3 GDP appears to be stronger than anticipated in summer, as we know, a few better numbers don't necessarily make the trend yet, but that's already reflected in the current cautious sentiment that got some psychological support by yesterday's pull-back.

Finally let's closely watch the Euro and the Dollar, now as the German Parliament approved the plan for an EFSF expansion and a few more drafts of the European "rescue" plan leaked. The EUR creeps closer to 1.40 versus the Dollar and the Dollar Index DXY trades very close to important support levels at 76 and 75, with the 200day MA also running at 75.79 and posing as technical support level. Stocks and commodities got a lift in recent days by a declining Dollar, so it will be interesting if a lousy and flawed compromise "master-plan" that continually gets postponed will be perceived as a sign of strength that will help rallying markets further or if the inevitable caution flags will bring everything to an abrupt end.

So far, the cautious optimism lives and buying any dips appears to be the only chance for investors to catch up with the benchmark.

Trade well.


(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own)