Securities Research Services

Tuesday, April 24, 2007

Conflicting Data

The market stall at these levels, which represents indecision in the market, can be summed up in three words: conflicting data points.

Money supply has been increasing significantly leaving the market flush with liquidity. This is a positive for stocks. Yet, the market does not price stocks based on today, but on their perceived future value. In other words, the market discounts the future. Taking this into consideration, the market is concerned with inflationary pressures.

Put succinctly, as the Fed pumps cash into the economy there is more to liquidity that can be used to buy stocks. At the same time, this liquidity is sure to cause inflation, which the market will want to discount.

A conundrum.

It’s best to follow price when the data contradicts. Right now the Nasdaq is trading at resistance. The S&P is above long term resistance, but price patterns are not encouraging as the index is trading in a rising wedge pattern and sputtered yesterday.

Meanwhile, the semiconductors have broken out and are pulling back only on light volume (bullish), and, scans continue to show decent set ups. Does this mean that we will see an upside breakout in the tech sector? It’s possible, but chances for a pullback are about equal here.

We aren’t altogether sure that anyone is altogether sure here, which explains why the market isn’t really going anywhere over right here.

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