DJIM #27, 2010
Tuesday, July 6, 2010 at 06:38AM The 2H-2010 officially kicked off with the celebration of National Holiday’s both sides of the border. Other than the fact, we've actually finished 1H-2010, there's really nothing certain that can be drawn from the performance of the first half of the year or anything to celebrate (major indicies negative 7-8%,YTD ) Unfortunately for 2H, there's nothing but fresh uncertainty due to the past 2 weeks of ‘soft’ eco data.
Lets face it! We have to accept the fact that the Economic recovery has slowed, if not outright stalled. In our experience, this may just be a very natural and a healthy process. However, because there's so much going on in the rest of the world that are beyond our control, it's entirely possible that this Economic recovery can be derailed. This is not a scary thought! We are basing this purely off the reaction of market participants over the past few weeks. We know that market likes to anticipate things few months in advance with their action. Given the fact that we are on a verge of breaking below 1000 SPX, market is currently writing off a lot of good potential for the rest of this year. As it stands, market is discounting stock prices in anticipation that bad things will happen next couple of quarter.
So, what may actually happen? This market may settle anywhere between SPX 943 to 980 before a clearer trend emerges on where this Economy is going and how the rest of the world is faring. In honesty, if we do end up having a double dip recession, this market will fall a lot further than 950-(943,50% retrace of this Bull run).
Therefore as of right now, we have to be mentally prepared for any potential movement in short term. What if things don't come out as bad as this market fears? What if this coming quarters profit reports are actually better than expected and company executives are actually upbeat in their guidance about the second half? In the case, we can bet that this market can quickly move back into a bull mode as this would give the market it‘s much needed stability and this current SPX1000 level will be the support/ top of this correction range. There's just so much sideline money out there that can warrant such a scenario. This market feels like a fast machine that just doesn't stop. Right now, the momentum is on the downside and we have to make sure everyone clearly understands that.
The coming week is a short week before AA kicks off EPS season a week from tomorrow. This means that we won't have to wait much longer before witnessing any evidence of the state of this Economic recovery. In the meantime, we simply have to take side notes to see which plays appear to be relatively the strongest when the seemingly inevitable breach of 1k SPX plays out. Still...a chance of a bounce on this relatively quiet data week after a liquidation into month's end coming into earnings is a possibility.
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