Working Off The Overbought

The market was lower in early trading, after a weaker than expected economic report, but it has since bounced back into positive territory. In economic news, the ISM Services index came in at 57.3, which was below estimates and also down from last month's reading of 59.7. This led to a brief selloff in stocks. In corporate news, Texas Instruments (TXN) said it will pay about $25 per share to acquire National Semi (NSM), a premium of almost 80% to last nights closing price. This news has the semi index, and most chip stocks, trading higher. Overnight, Hong Kong and China were closed for a holiday, but China's central bank still announced another 25 basis point rate hike for its 1-year deposit and lending rate. Japan was down -1.1% overnight. In Europe, the markets are lower after Moody's followed other agencies in downgrading the debt of Portugal. Today we also get the minutes of the latest FOMC meeting at 2pm EST. I expect to hear more of the same, that QE2 will run its course, the Fed will hold rates low for the near-term, that inflation is not too big of a concern at the moment, and that the economy is slowly gaining steam. Trading comment: The market was roughly flat yesterday, and is starting off that way today. Sometimes after the market gets overbought (see yesterday's chart), it merely consolidates in a sideways fashion while working off this overbought condition. This would be bullish action, and likely lead to further upside after a pause. Some stocks have simply risen too far, too fast. Yesterday we trimmed our positions in MELI for just that reason. long MELI