1. We have come too far too fast. How many times do you remember seeing the SP500 soar 17% in 3 weeks (or know of it ever happening in history)? And the kicker- the move has been on below average volume! Moreover, if the market is to get back to 1370 (2011 highs) by year end- it will have to move 28% from Oct 4- Dec 31. Possible, but probable?
2. Nothing has changed- the “fundamental” mess that sent a slew of risk assets lower over the summer (i.e. US and EU debt issues, anemic economic growth, etc.)- are still unresolved… Everyone (right now) is focused on Greece. However, even if Greece is “handled” it does not address the broader issue: The other PIIGS are broke!
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3. Most bear markets last 18-24 months- not less than 1 day. The S&P 500 officially hit bear market territory on 10/4 (down 20% from its 2011 high) and that lasted for a tenth of a second because that was the exact low for the year (so far). Normally, the 18-24 months allow stocks to reset their bases and paves the way for new leadership to emerge.
4. I find it very interesting to see the stock market “bottom” (at least for now) on 10/4 because that is the EXACT day the Fed started operation “twist.” Coincidence? You make the call. Remember QE 2 in 2010 led to a nice long rally. Will twist do the same? No one knows just yet.
5. I find it VERY Interesting- (for what it is worth) to see the low on 10/4 undercut support by ~25 points (support was 1100 and the low was 1074.77) and then Monday’s -10.24.11- high was ~25 points above resistance (resistance was 1230 and Monday’s high was 1256.55)
6. Remember, that some of the market’s largest moves (both up and down) occur during bear markets. Since the beginning of August, volatility has surged- in both directions!
7. Leadership has rotated. Here’s a quick glance at some of the stocks we have given out to our clients in recent weeks:
UA – fresh heavy volume breakout Tuesday (now pulling back)
All this is just noise. Remember, markets climb a wall of worry. As long as the S&P 500 trades above its 50 DMA line, it deserves the bullish benefit of the doubt!