Idle weekend speculation…

I cannot see a technical reason for a stock market rally from current levels.  One parallel people may be sensing is analogous to 2008-09,  a fall swoon, a recovery and then a bigger swoon in the spring.  There is also positive seasonality. I cannot see a fundamental reason either. With earnings season approaching, the mixed domestic macro data suggests that companies in the aggregate are not likely to provide positive outlooks for the near term (there will be individual winners).  Further, earnings beat rates have been shrinking over the last few quarters as is to be expected from the recovery that never was!

So that leaves the macro “surprises.” Preliminary estimates of US-GDP for Q3-2011 come out late October (27th I think). 1.6% was the growth rate last quarter, and anything above means it is off to the races. There is always the central bank interventionists.  Operation Twist is just for biding time until a more receptive period for QE comes along. Huge euro-tarp is another obvious one. Does this cause the Euro to drop and the dollar to rise, killing the commodity bounce? And what of gold, the one thing that nobody can print? And there is the inevitable trickle of news about more PIGS crises and downgrades.

Methinks the wild swings continue until there is more clarity and that it is imprudent to operate without two-sided exposure, if you must operate at all.  Weekly option expiration dates also  fuel the market volatility. If there is a rally, this is not a market where you let winners run for ever. If there is a dip, this is not a market where you let the shorts run either.  I have one of each and will watch the HFTs run amok–fairly confident that they will keep providing short-term opportunities for risk-takers. All bets are off- if  the rather broad range of the last few months does break convincingly either way.

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