Confidence is the New Buzzword

By Jim Farrish | October 29, 2008 | 3:39 PM | 0 Comments

Plenty of talk today around the concept of confidence stepping up. That may be true, but I am not buying into the confidence measurement of the media. One big up day doesn't cancel all the negative sentiment and skepticism we have experienced over the last eight weeks.

Crude prices rise on... confidence.

Yen rises on rumored rate cuts in Japan sparking... confidence.

Libor rates fall below 3.5% on... confidence.

Fed rate cuts inspire... confidence.

Where was all of this confidence two days ago. I tend to lean more towards the sellers being sold out and some buyers stepping in and creating a short squeeze. There are so many issues still unresolved in the markets investors are still confused. The short term opportunities are no doubt attractive for short term trades. However, the outlook over the next 2-3 quarters is not that attractive. This leaves a conflict between what is happening today versus what will happen over the next 6-9 months. As I stated in yesterday's post investing now takes stepping outside the box and finding what works to accomplish your goals.

The Chart-of-the-Day posted this morning was a look at ProShares Ultra Gas & Oil ETF (AMEX: DIG). You can read all the details if you chose, but the point was there was a short term opportunity based on a technical approach. The ETF has moved higher today as the sentiment spillover I discussed has taken place.

Another watch point I have discussed of late is the rise in the dollar. The dollar has moved up on emotions, sentiment and some logic short term. The rise is due for a pullback. We are seeing that somewhat today. I raised my stops on my positions in the dollar to protect the gains.

Gold, agriculture and basic materials were oversold as well and the bounce in the those sectors is underway. The swing higher off the lows on Monday are in play. This will likely be a higher bounce than the last one. For example a bounce to 10,500 on the Dow would be in line with expectations over the next couple of weeks. Although with volatility as high as it remains, it could happen faster. Short term momentum is shifting, but the overall risk remains in play. This is not going to be a straight shot to the upside. I would fully expect a retracement towards the previous lows over the next 4-8 weeks. So be patient and let this all develop. If the move lasts over the next 6-8 weeks then we can start talking about confidence.