A Curious Turn..

7am EST The market had every opportunity to go lower yesterday and it didn't. We broke through the 900 level on the S&P but regained it by the end of the day. We should have been lower on the Dow but ended the day higher. The NASDAQ was weak but it stayed at the 200 day moving average. The longer the NASDAQ stays above the 2oo day, the better it is for the bulls.

There were two phenomenons I was looking yesterday. They send two different signals to me, and I am a little confused. The first phenomenon I was looking at was bullish. With the market bringing on massive amounts of supply in the form of secondary offerings from huge financial firms, it showed amazing resilience. With billions and billions of dollars of supply coming on the market, the market still went modestly higher. That signifies a strong demand for risk based assets like stocks.

The other phenomenon shows me the exact opposite effect. Gold and silver (commodities and stocks) have been strong recently. This normally signifies a certain amount of risk aversion. It tells me that people are shying away from risk based assets like stocks.

What this combination tells me is that institutional investors are probably looking forward to the inflation we will inevitably see. I am not jumping into the gold trade yet, but it is certainly on my radar now. I want to see gold trade above $1010 before feeling comfortable buying. The $1000 level has been resistance a couple of times, and I want gold to go through that level strongly to get in before the institutional buyers pile in.

It also tells me to be cautious on being outrageously long stocks. I am going to trim a couple positions today and be sure I have good cash levels. If the coming correction is stronger than I anticipate, I would rather be out and miss some of the move higher than be in the market pulling my hair out.

I am staying cautious today and I probably won't initiate any new longs. I am staying cautious. Until next time, stay low risk..