Will 11000 in the Dow be enough to convince late blooming bulls that they see a red blanket waving in front of their eyes? Will it be 1200 in the S&P500 which sends all the swimmers back into the ocean after the Jaws scare?
It certainly seems like we have to test some major psychological resistance areas like those, especially Dow 11000. We might need a cover on Time Magazine of President Obama riding a bucking bull from his presidential low at 6446 to 11000. All in all it just feels like the whole nation is ‘hanging fire’ waiting to see what happens next.
For those of you who slept through high school history class, ‘hanging fire’ refers to the time after a cannon fuse was set on fire. There was always a waiting time to see if the cannon would fire at the enemy, or sadly, explode in the faces of the soldiers or sailors who loaded the canon. When a soldier lit the fuse in a cannon there could be quite a delay until the charge ignited, and this was known as hanging fire. Similarly a flash in the pan related to a failed attempt to fire a flintlock musket, when the flint produced a spark in the priming pan but did not ignite the charge.
So are we hanging fire, or just waiting on a flash in the pan?
As we await earnings this month, I would say its a little of both. The overall impact of earnings will have to be slightly bullish. What company CEO in his right mind promised anything other than bear minimum results in the midst of this economic malaise we are in? Especially after what happened during the last bubble where results very often were promised, and if they were not met, the company would lose 2/3rd of its stock capitalization in about thirty seconds. Miss a number by 1/4 point and pack your bags, or at least find yourself being excoriated on CNBC by a talking head who most likely never met a payroll in his or her life…
So we have a situation where the term ‘guidance’ is almost meaningless, and every surprise is to the upside, because the downside has been discounted back about six decades.
In my opinion, we will trade sideways to higher through 2010. But we will have a better picture after the end of this first quarter. Right now it feels like we are sailing along at 1/2 speed in a fog bank. The radar is on and functioning, but the captain doesn’t trust his radar any more. The only positive thing this market has going for it is a dollar which looks like its going to double over and heave back down into the basement, (which will keep our markets on sale for the rest of the globe).
The second thing it has on the bull side is a general feeling of worry and distrust. That psychology is the perfect recipe for a creeping rally which no one believes, yet quietly, surely the market is letting the participants know that, once again, popular opinion is almost worthless as anything other than a fade.
Continue to watch that 78 level in the dollar index. A pop above would be very powerful at this point.
All in all I think it will be interesting to see how this plays out. Will there be follow through? If there isn’t, then the reversal of fortune will be swift and painful for the bulls. So be long, but have your stops in place.
