Bull versus Bear Revisited

[scriabinop23]

Post your thoughts on equity indexes.

I saw complete correlation between USDJPY and equity indexes this morning (and inversely to bonds). Complete ignoring of 8:30 economic reports, showing increased wages and inflation uptick (despite bond market continuing to buy).

With solid fundamentals by way of very bullish ISM for Feb (amongst first of Feb #s to be released), and consideration that we've corrected from 1462->1380 on ES (and 1867 to 1720 on NQ) over the past few weeks, I think we're done selling. today's action was bullish, although not optimal (end of day rally would've been beautiful).

Looking at last May's correction, it took 2 entire months for S&Ps to sell of 100 pts !! we've done the 85 pts nearly a week or so !! ES would need to go to 1350 to match the last May correction in depth (percent change).

I argue fundamentals are stronger now, market is cheaper, and threats to the economy are -less- imminent (despite fear mongering in the press concerning subprime collapse, etc). Oil is cheap compared to last correction time ... yada yada yada. Consumer is very strong. etc

 

[bluud]

Quote from scriabinop23:

Oil is cheap compared to last correction time

almost the only thing I can agree with, though I'd still wait on that, cause the US-Iran tension seems low now

 

[scriabinop23]

Quote from bluud:

almost the only thing I can agree with, though I'd still wait on that, cause the US-Iran tension seems low now

If we start seeing wage deflation, massive job losses, and $75-$80 oil, I'm turning bearish. Iran remains the single biggest threat to the picture, next being ARM reset this year. But jobs environment and relatively cheap bond market supports the latter ... so I ask why be a bear when there's a lot more upside?

 

[Raul641]

I think a correction is long overdue. The market has been blowing off mediocre economic numbers for months. The trade deficit is still gigantic. The budget deficit is huge.

The wars in Iraq and Afghanistan are going poorly and getting worse. The slightest hint of increased instability in the Middle East sends oil up $10 instantly. Look at the Israel-Lebanon war -- neither of which actually produces oil.

The Bush administration's decision to open diplomatic channels to Syria and Iran this week should help calm things a bit, though the Iraq situation is rapidly deteriorating and may yet erupt into a regional war. Russia is protecting Iran from any real action against their nuclear program, though, and it's only a matter of time until they announce success. When they do, oil will skyrocket (even though they have no interest in disrupting oil supplies) on speculation, potentially for a long time. This will harm our oil-based economy.

All that said, the US economy does seem to be stabilizing a bit. I worry that the effects of last year's weak numbers (in pretty much everything except energy in finance) have not yet appeared in the markets, perhaps on borrowed money from the carry trade. Probably the Fed will cut the US rate around Q3 to prop up growth a bit, as Japan slowly increases their rate.

Tuesday could well be the catalyst. Or maybe it won't be; it wouldn't surprise me at all if the market shrugs it off entirely and resumes "irrational exuberance" mode. So at the moment I'm mildly bearish. I give it a 60-40 chance in favor of a continued slide. Not a dramatic crash or large-scale recession, but a slow, moderate downturn... A week or two of solid buying will change my mind back to bullish, at least for the short term.

Cheers.
R