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The Dow Jones industrial average had a very flat session on Thursday, as we ended up basically unchanged. With this being said, we are at the top of the massive rising resistance line, and as a result we could be seeing a little bit of slowing down momentum wise. This shouldn't call for any kind of massive move lower, rather just a pullback that should continue to attract more buyers.
The markets are convinced that the Federal Reserve will begin more monetary easing in September, and as such stocks will remain a good buy. The 13,000 level below should offer support, as well 12,800. In this environment, you do not fight the Fed and as such buying stocks is certainly going to pay out more than shorting well. Of course, if the Federal Reserve doesn't introduce more quantitative easing, we could see a real meltdown. However, the Federal Reserve has proven time and time again that it is there to serve the markets, and as such we find it very difficult to believe that they will go against the grain this time.
We are not willing to buy at these elevated levels right now, and as such are waiting for the pullback that we see as inevitable. As mentioned before, we think the 13,000 level should attract plenty of buyers, and support in that area would have us buying stocks again. The movement in the Dow Jones does suggest that we are going to try to break the recent highs of 13,300 that were made in May. With this in mind, we are buying only at this moment in time.
However, we have to keep in mind that there is always a bearish case to be made. Although we don't like the fact that stocks have run in such a steady and counterintuitive manner, the fact is that the market once the go higher and we simply cannot argue with it. However, in this headline driven type of environment we find ourselves in it will pay to be the first one out the door as soon as trouble shows itself with this in mind, we will be keeping relatively tight stops on any stock purchases.