While we cannot rule out a continuation of the markets recent trading range (SPX 1325-1220), it looks as if several pieces are coming together that suggests a break above 1325 could occur. I don't know the exacting timing of this occurrence, but evidence does suggest the possibility.
If we do get a re-test of the May lows around the 1225, there is enough evidence to suggest that the market could trade above its May high's (SPX 1326) before the economy begins to roll over.
Here are some things that lead us to believe this could happen;
1) Large amount of pessimism coupled with a large amount of cash on the sidelines.
2) Short interest is elevated.
3) Oil prices and Real Estate prices are beginning to decline which will calm inflation fears.
4) Bonds are rallying, and yields are falling.
For these reason's, we believe the market may mount an impressive run before the reality of a slowing economy takes hold.
Comments (2)
Hi John,
I'm in agreement that there's a good possibility of the economy rolling over. Remember 2/3rd's of the economy is consumer driven. Hence forth when you get the CEO of Wal-Mart coming out an acknowledging that his staple of middle class consumers are spending their dollars on gas rather then spending their time in his stores, that's a telling tale!!!
P.
Posted by pm2075 | August 18, 2006 3:04 PM
Posted on August 18, 2006 15:04
John what do you think of the CRB index?
If the world economy slows down that could
reduce the demand for commodities.
Less inflation? Deflation?
http://stockcharts.com/gallery/?%24crb
Posted by DollarBill | August 21, 2006 11:42 AM
Posted on August 21, 2006 11:42