The market is at a crossroads. Even though my stance has been bullish for some time, and I continue to see a bright future further out, it now appears to me that fear might once again take hold of the market and shake it up in the near term.
Certainly, the timid action in the last few sessions suggests, at a minimum, a high degree of caution, and the strong selling action today suggests the bears are stepping up their campaign to take the market back. Beyond this, however, I sense a shift in the general belief about the global economic recovery, particularly the economic recovery in the U.S.
Fundamentally, the economic recovery is on track, but the train moving forward is slow and wobbly. Even as employment numbers have steadily risen for some 13 months, manufacturing has steadily pounded out products, and big business has spewed out profit, a certain undercurrent of weakness flows beneath the stronger growth current. A recent IMF report predicts an improving yet edgy global growth story for 2011 and 2012.
The global economic recovery is gaining strength, with world growth projected at 4½ percent in both 2011 and 2012, but unemployment remains high, and risks of overheating are building in emerging market economies. Soaring oil prices and inflation in emerging economies pose new risks to global recovery, but are not yet strong enough to derail it, the IMF said on Monday.
And then, there is this …
The average price for a gallon of gasoline in the United States has moved closer to $4, jumping more than 19 cents since mid-March to a level less than 10 percent below its all-time high
And this …
Oil prices tumbled from two-year highs Monday in New York as traders fretted about the impact of recent price rises on the weak US economic recovery. On Tuesday, oil tumbled more than 3 percent after Goldman Sachs warned investors that crude is due for a “substantial pullback.”
The above is emblematic of the crossroads. As oil prices drop, so does the price of gasoline, the impetus for global inflation, and the threat to the global economic recovery the IMF identifies. Yet fear and excessive caution are evident in the market …
A gargantuan bet against silver values was placed into position yesterday with the initiation of a one million-share-large put on the iShares Silver Trust (SLV) – at the $25 level by July. The bet constituted the largest single options trade on US exchanges and came as silver was touching the 31-year high watermark near $42 per ounce.
Add to this basket of uncertainty Japan, the Middle East, the recent budgetary tumult here and in Europe, the pending battles here about the 2012 budget, the coming battle over the debt ceiling, and you have the market teetering on a fine point. One catalyst, however, could quickly push the market one way, or the other – in an uptrend, the market ultimately rises or falls on growth and profit. Earnings season is here, and the market will soon decide which way to go …
Investors will look to corporate profits and outlooks this week for confirmation the S&P 500 has another leg to its rally as the earnings season gets under way.
Trade in the day – Invest in your life …
