Monday was yet another reminder of last year's low volume rallies. We ended today with the lowest volume of the year. It seems volume has continued to decrease over the past few weeks and some of it may be very concerned bears and bulls alike waiting on the outcome of Tuesday's Fed meeting.
Last year saw a significant amount of upside on declining volume. It will forever be known as the most unloved rally we've encountered in recent memory. Could we be setting up for another one of these rallies? I don't believe so unless we see another stimulus. Tuesday will give us some insight into the possibility of another one.
While the markets may want a stimulus, I am against it. We need job growth and I do not believe any stimulus this administration will create can provide that. I believe we should be giving significant tax incentives to companies who hire salaried employees off the unemployment list rather than giving disadvantages in the form of higher healthcare expenses. Why should companies start using their cash reserves when Ben Bernanke stated himself that the economy is "unusually uncertain?" These companies may need to use those reserves to help keep them afloat. Will a stimulus change that? I doubt it.
However, the market is disconnected from the economy. The market can increase while the health of the economy fades further. All the recent negative macroeconomic news has been turned positive by the bulls in the form of an anticipated stimulus. The 2009 market rally is likely due to the stimulus and another rally could be due to a second stimulus. The problem is we are already deep in debt and printing money we don't have. This is certainly a path to inflation or possibly even the dreaded hyper-inflation.
I do not believe a second stimulus is guaranteed nor do I feel the need to predict. As usual, I am reacting rather than predicting and currently I'm staying market neutral until the Fed news. I reduced some of my positions today and will look for some quick intraday flips tomorrow before quickly going neutral once again into the afternoon Fed news.
I added positions in IntelliMedia Technology (NIV: 2.51 0.00 0.00%) and Orexigen Therapeutics (OREX: 5.32 0.00 0.00%) today as I liked both chart setups and NIV in particular had higher than normal volume. I took some quick profits in NIV late today and will likely reduce more tomorrow before the Fed news and before their earnings report. If OREX stays above $5, it will be making higher lows on its recent run-up, which is a very healthy chart setup. I believe we still have more room to run with this FDA play. However, with the Fed news tomorrow, I am not looking to make OREX or any of my positions larger just yet. Patience is typically not a virtue I possess so I will have to stay extra focused and not force anything.
NVIDIA Corp (NVDA: 9.2425 0.00 0.00%) is still moving higher off its 52-week lows and I believe it still has much upside. I've stated before, NVDA has significant amounts of cash and very little debt. They have the resources to turn the company around and I believe the odds are in their favor of doing so. If the Fed's news creates a bullish behavior, I will look to add to NVDA even though I am already up.
Orient Paper (ONP: 5.14 0.00 0.00%) is back on my watchlist as the audit will be completed soon and I foresee favorable results. I'd like to see ONP dip under $5 to make it a very favorable risk/reward play but may take a nibble at current levels depending how the Fed news moves the market. Another name I haven't discussed in a while that is back on my watchlist is GoIP Global (GOIG: 0.00 N/A N/A). The chart is starting to come around once again and it may make a run in the near future, so I'm likely to start a small position if I can get in at favorable prices. If we go bearish after the meeting, you can expect me to turn to my ProShares UltraShort S&P 500 (SDS: 31.29 0.00 0.00%) position and ride the move down.
As always, do your own homework to see if you agree. Have a good night and I'll see you in the morning. Good luck out there.
Mike
At the time of publication, Kudrna was long OREX, NVDA, and NIV but positions may change at any time.
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