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Friday, October 15, 2010

Market Thought... always thinking

Its nice to be right, so far, but gotta keep a few step ahead. The daily chart shows us at the 'light' resistance area I pointed out. We can clearly see the market hesitate at the bottom-end of April/May top.

We are seeing the light resistance, arguably acting far stronger vs some economic data points we have seen. Many people/analyst want to justify this rally due to QE2, I say 'HORSE SHIT!' The earnings we have see so far, w/the exception of GE's revenue, paint a fundamentally strong picture. But we have a lot more earnings to come, especially next week.

IMO, the real resistance will be from the weekly and monthly SP500 charts, near the 1200 level.

After this light resistance, I think we do push higher near 1200. The tricky part is figuring out what happens after we test the real resistance. IMO, we will see a correction at that point, I just do not know by how much. It could be to the 14, 28 or 32 SMAs. Judging by today's action in the 10yr note, I am beginning to believe the 10yr yield will act as an indicator to this.

If a round about bottom develops, this will trigger a sense of 'normalcy' within the big boys to justify a market multiple of 14 or so. Here is where the year-end rally would take place. Remember, SP500 estimates are for $87 a share ($87 x 14 = 1218). But these estimates were in the mist of market uncertainty, and companies IMO have already proven that 87 is too low.


  1. I appreciate your analysis as always, and I take it as perfectly plausible. One thought I've had about earnings, however, is this: given high commodity prices, aren't many companies faced with higher costs at the same time that middling demand limits their pricing power? (Or perhaps that's been fully discounted in current earnings estimates?)

    Appreciate your response as always.

  2. They are, but I do not think we are there yet with respect to margin compression. 1st we will see it at the margins, then the price gets passed through. Looking back at 2007 prices, gives us a great gauge as to what to expect from the consumer. I do not see enough chatter to elevate 'high commodity' prices as a stock market concern yet. If weekly earnings (from the reports, aka incomes) stop rising, and commodity prices keep rise, that will be the red flag for me.

    I think we are in the clear for a few more quarters, but this concern has a lot of moving parts in order to make a true assessment.