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Reading between the Lines



The market is bouncing around today and there are a few themes that I want to touch on. First of all, is it me or does it feel like there is a serious underlying bid to this market? I am not talking about specific names but rather the market in general. I think that this can be attributed to the large number of accounts who have taken out what I like to call an insurance policy during earnings season.

It is no secret that many accounts are long stocks, and continue to buy. So, in order to hedge out risk, during what may be a rocky earnings period, they short ETF's and futures against their stock positions. Well, when you have many, many accounts doing the exactly same thing (shorting ETF's) almost any down swing will produce buyers to cover shorts.

Secondly, I read in a few places that although the market may feel ok, the Dow is only 75 points from being down on the year. If you subscribe to this train of thought, get real. Number one, the Dow is a poor measurement of the total market health. Number two, get a better bear case than that. If your barometer for market health is constricted to 30 Dow names then you should just buy an index fund and save us the time of reading/hearing your thoughts.

Lastly, although the precious Dow was down yesterday, market breadth was awesome. Advancing issues outpaced declining ones by almost 2-1 and upside volume outpaced downside by 2-1 as well. Wait! How could the market be down and yet stocks were still up? Because many of these issues are mid-cap names whose charts and actions are 100% bullish.

In conclusion, my presentation of these themes was to show you what in my opinion is a reason the market grinds higher every day, a new market story from bears, and to point out that the real action may not be what is being talked about on TV or in newspapers.

Have a great day!

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No positions in stocks mentioned.

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