3 BULLISH AND 3 BEARISH POINTS…WELL, KIND OF BEARISH
THE GOOD:
1. Strength in tech: The leading technology companies are all experiencing substantial strength. They have, in fact, been bucking the trend of perpetual weakness since the swoon began in August. Mega-cap tech is leading the way. The obvious strength seems to be screaming that a surprisingly positive October earnings period lies ahead.
2. Pessimism: The markets have caused enough psychological damage that a majority of individuals and institutions do not have nearly the exposure they would like should the market continue moving up. This is a difficult rally to buy and that's exactly how the market wants it.
3. Semiconductors: The leader of technology has regained its position as a leader and is experiencing a substantial breakout from the trading range formed over the past several weeks. This bodes well for the entire market as strength in the SOX provides a foundation from which technology can pull up the entire market.
THE BAD:
1. Commodities: What happened to the leadership of the commodity sector? It could be a reaction to the recent strength in the US Dollar. It could also be a reaction to weakness in the global economy. It's too early to say. However, it deserves to be watched.
2. Bond Market: Bonds are often times slow to react to changes in trends. I think that could be the case here. Classic bond market watchers will look at bonds in their current state of disbelief with respect to the current rally and say that the rally will fail. I take the opposite view: The lack of conviction amongst the army of chicken littles hiding in the bond market is capital awaiting to reenter assets with a positive real return rate. Those who are hiding in fixed income will suffer from underperformance anxiety by the first to second week of October. Either way, the long end of the curve is due for a substantial decline. Perhaps this belongs in "The Good" section?
3. Still Rangebound: In the S&P and Dow we're still sitting in the nightmare range of the past several weeks. These averages need to follow the Nasdaq and breakout within the next week in order to legitimize the bulls case. A flood of money will rush into the market if a sustained breakout occurs.
I'll have a bunch of charts in my Sunday review this weekend going over the ever changing picture in the markets.
