Thursday, October 25, 2007
Wall Street chiropractors must be loving the current market, as the whiplash of the last few days is surely providing them with a steady stream of customers. Yesterday's late-day rocketship, ostensibly on the back of emergency discount rate rumours, was in reality just the upside analogue of Friday's late-session meltdown. Lots of noise, wide ranges, but relatively little net change. Having been stopped into a Treasury short near the lows, Macro Man has now been stopped out near the highs. Ugh.
What's remarkable is that despite the turmoil and volatility of the last six months, the S&P 500 has, on aggregate, netiher gained nor lost ground. Indeed, it's spent most of its time since mid-April in a relatively tight 1450-1550 range, with a couple of peeks to the topside and August's bum-clenching downside test.
That the 200 day moving average continues to contain losses is an encouraging sign; less positive is the lack of breadth in the market. Earnings expectations surely have further markdowns to come; by the same token, bonds offer little competition at current yields. Soveriegn wealth funds will be switching out of fixed income and into equity; however, the buyback and private equity bid seems likely to be less potent in the future. October seasonality is horrible; seasonality in November and December, meanwhile, is usually quite supportive of the market.
So there are plenty of reasons to be bearish, but valid reasons to be bullish as well. On balance Macro Man feels like the market is bearish, but it's hard to be sure. So he is curious about your view. Punch in your view in the poll below; apologies to the couple of you who voted in the sidebar poll, but Macro Man prefers this format- feel free to vote again!