WE’RE IN THAT WINDOW…..BUT
There's always a but. Especially when you have a newly formed group of buddies in the EU who are genetically predispositioned to dislike their neighbor to the north, south and west. Suddenly the once brilliant idea of bringing everyone together to compete with the United States and allow the European economies to flourish without borders has become the equivalent of making Los Angeles the capitol of Texas. Everyone hates the idea and each other as a result.
The rally today should not have fizzled in the manner in which it did. The shorts and under-allocated longs were in the perfect position to be taken advantage of, but the market couldn't capitalize. That is a short-term negative.
On the other hand, we are in a time period when the buying window has opened. The next several weeks have a very high percentage probability of being quite bullish. You saw an example of the pent up demand for risk today. There is a disease of under-allocation to equities taking place that is based on fearful expectations of another autumn disaster.
Earnings season in October is going to be far above expectations. The economic reports will show that fears of the European contagion hitting US shores have been exaggerated. The lack of risk in portfolio managers portfolios will become quite apparent right as time to bring in those gains is running off the clock into year end. This should result in a mad dash into riskier assets. All intermediate-term positives.
There is a better than coin-flips chance that the markets will fall into the end of the week. Volume will be light due to the Jewish holiday. And let's not forget about the constant flow of news coming out of Europe as they attempt to put together a rescue plan for what ails them.
I have a 25% cash allocation that I will be looking to put to work should the S&P 500 fall below 1120. I have no interest in shorting the market hoping to catch the next few days of downside. I'm in accumulation mode here, as the intermediate term opportunity is on the bullish side of the trade.
Should we manage to finish Thursday's trading above 1180 on the S&P, then the lows may have been set earlier in the week. However, a momentum driven decline either today or tomorrow may move all the way down to the recent lows, as it will indicate further worries about Europe right before they face enough pressure to finally agree to a deal, despite their differences.
If this all sounds confusing, look at a chart for the S&P over the past two months and realize that it's simply a reflection of what this market has become: A bull and a bear in a giant blender trying to see who makes it out with enough flesh attached to cultivate a move that lasts more than a few days.
