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After Effects

May 5, 2011 – 5:06 pm

As earnings season winds down after impressing the traders and investors with very strong numbers with strong projections going forward, those same traders turn away from that news and focus on other things. This is typical. Earnings is old news and the market is fickle in the short term so it is looking for what’s next.

When they do that in May it usually means prices for stocks begin to weaken. There is always a reason or weakness and this morning it is the jobless claims that increased a surprising 43,000. Of course there were reasons for the spike: spring break, extension of benefits in Oregon and temporary plant shutdowns in the U.S. because of lack of car parts from Japan, but the real reason is that it is a time for a small pullback in stock prices after they reached new highs in late April.

Also, there is always a tendency for any equity, after a sharp spike, to have a sharp retracement. You are seeing that in silver and oil in the last couple of days but not so much in gold. The dollar has fallen sharply
over a long period of time so at some point that too will bump up after being stretched too far downward. Of course no one knows the upper or lower limits but you can easily see that something has gone farther than it should.

For the overall market don’t expect the pullback to be much and it is going to be very difficult to try and trade it. There is a lot of money still sitting on the sidelines and it is clear that those who have been in cash ever since the 2008 market collapse are tired of making nothing in their savings accounts and next to nothing in their CDs. People are searching for better returns and have been trickling into equities.

Good Trading
Steve Peasley

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