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Welcome Back My Friends . . .

. . . to the show that never ends, we're so glad you could attend, come inside, come inside:

>

With the Summer officially over, the masses of traders, fund managers and corporate honchos return to their trading turrets, offices and desks, ready to kick it out for the last four months of the year.

What's on their minds? Here's a quick overview:

Bullish

• Its no coincidence that Crude Oil is at a 3 month low and the indices are at a 3 month highs.

• The biggest North American Oil find in a generation may add further pressure to Oil prices;

• Performance anxiety is a powerful factor that could draw more players into equities;

• We are 7 weeks away from the best seasonal period for equities;

• Mortgage prices have slipped to 5 week lows, perhaps providing a respite to the floundering housing market;

• The major trend in the equity market since June is upwards.

• Bond rally seems to have ended; Rotation away from fixed income into equities is possible;

• Recent economic data puts the Fed on hold at least another 2 months;

• Earnings period is over, with most S&P500 companies reporting better than expected;

• With the summer over, Momentum is with the Bulls.

 

Bearish

• Much of the good news is baked into stock prices already;

• Since the mid-June low, the SPX has rallied nearly 10%;

• Markets have rallied on decreasing volume and breadth;

• Complacency has returned, as the VIX reachs 3 month lows;

• The American Association of Individual Investors (AAII) reported there are now only 25.84% bears, down from a peak of 57.8% on July 19;

• Markets are enetering the most dangerous 2 month stretch of the year;

• The economy is slowing significantly; Employment has trended downwards:

2004: 175,000/mo
2005: 165,000/mo
2006: 140,000/mo
Past five months: 119,000/mo

• Forward Guidance out of many companies has been weak;

• Q3 warning period is a few weeks away;

• Earnings gains have been concentrated in the biggest companies; The bulk of firms beneath the SPX are struggling;

•  Despite lower rates, Mortgage purchase apps fell to their lowest level in August since 2003;

• Retail sales are slowing;

• Inflation remains ever present;

Neutral/Unknown?

• What will returning traders do? Fear missing a run and jump into the fray, or take advantage of higher prices and hit bids ?

• Will the political control of the House of Representatives flip in November ?

• How will the situation in Iraq, Lebanon and Iran impact consumer sentiment -- and spending ?

These are the elements worth watching, as we return to what is often the most interesting part of the calendar -- back to school, end of Q3; year end Holidays, and 4th Quarter.

Tuesday, September 05, 2006 | 06:49 AM | Permalink | Comments (41) | TrackBack (2)
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Comments

Lots of food for thought. Makes my head spin. the indicators that jump out for me are:
BULLISH
1) which way is oil really headed over the next few months
2) how do we get a handle on something like performance anxiety. Sounds like it could be very important
3) what factors will impact rotation out of cash - it would be great to see a chart showing the flow of major asset classes over time and what trends are at play.

BEARISH
1) what will happen when volume and volatility return
2) which way the AAII bearish sentiment moves
3) inflation

Posted by: trendwatcher | Sep 5, 2006 7:45:48 AM