Securities Research Services

Friday, July 07, 2006

4th of July Rally Fails to Garner Buying Interest

The lack of buying interest this week has been troubling. Equally troubling is the continued underperformance in the tech sector. This is exactly the same picture we saw in late spring of this year before the market took a turn for the worse. Since the market has not made a strong recovery off the recent lows we can only assume that the downtrend started in May is still in effect. Today's employment report is expected to come in with large numbers. The market will likely react harshly to a "good" employment report as they expect that the Fed will be forced to continue raising rates. The problem is that rate hikes have already impacted the outlook for the economy in 2007 and raising rates more will likely turn a soft landing into a hard landing. The market knows this and is panicky. We would like to start adding some short exposure, but with the big looming employment report to be released before the open today, we are unsure how the market is going to react. It is unlikely to correct the fact that the market is going to correct further over the next week or so, but today's reaction could certainly skew our entry calculations making it more likely that we would stop out of a good position.

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