Bulls Will Call the Shots

Two minds square off in the aftermath of the buying we saw last week. The first is that while the continued uptrend from the most recent lows brought a sigh of relief from market bulls, it was actually more about fund rebalancing at the fiscal year end. This was contradicted by those who believe that the market has priced in an economic meltdown and, inclusively, a 2009 recession. For the latter minds, buying from current levels is more about bargain hunting and opportunity than any seasonal adjustments.

The one thing I do look at for now is that those money managers who rode this all the way down had better not miss out on any upside for the remainder of the year. These next two months will be the hardest for this camp. Do they sell into strength, or try to eke out as much as they can? It is this force that I believe drives the markets in the next two months and creates continued volatility measures that we have been used to in the last eight weeks of market behavior.

I had said that last week's market behavior was probably going to be the most important with regard to whether or not market-level supports would hold into the end of the year. The bulls appear to have some control of the situation at market lows. The switch that is needed now is to see them take control at former support levels that now act as resistance. It's easy to buy new lows. It's not so easy to buy new highs in a bear market. This will guide behavior over the coming eight weeks.

To make it even harder, the bulls now face the top of the order in economic data. We will get ISM index and service figures, auto and truck sales, productivity figures, wholesale inventories and the employment data all this week. And oh yeah, there is that election thing that will finally come to an end and offer us a piece of history by either camp that will occupy the White House come next year.

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At the time of publication, Schumacher had no positions in the stocks mentioned, although holdings can change at any time.

Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.