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Serenity now!!


So much for starting the day over! Yesterday ended the way it began...with angst. I guess now is the time to remember that we can't control what goes on around us, only control our reaction to it. Can anyone say "Serenity now Jerry?" What is going on around us is decidedly stressful. The markets are in decline, military action is looming, earnings were mixed and now behind us and we are heading toward a big news week.

Sure the market has become oversold and looks poised to bounce. The problem is that anyone who is a buyer is unlikely to hang on to long positions for an extended period of time because next week brings a slew of economic reports, including the ISM index and Payroll Employment. Oh, and there is the speech by Secretary of State Colin Powell Wednesday at the UN where new evidence regarding EVEN MORE non-compliance by Iraq is likely to be presented.

Everything about this environment is so negative, why wouldn't someone just sell everything they own and go into the only good investment left - CASH? The answer is that while there is likely further downside given the economic and geo-political backdrop, the market responds to news based upon the way it trades into news. As Toddo pointed out yesterday afternoon, the time to be an aggressive seller isn't when emotions are running hot and the tape is getting blasted.

The washed out nature of the near-term indicators suggest an important low is coming, while the intermediate-term indicators point to further weakness. In English, the daily readings say, "get ready to buy," while the weekly readings are saying "be patient in that decision." Based on what happened in the building of the low last September/October, there could be a 9% decline in the S&P 500 (SPX) from the initial oversold bounce. Two percent of that came yesterday. A 9% decline from Wednesday's close would be 781 on the SPX.

The interesting thing will be if all those looking at the "double bottom" in October, will be proclaiming a new bull market because of the "triple bottom" that is apparently being developed now. While my tone clearly has some level of sarcasm (who me?), it reinforces that after a historic bear market, proof of trend change is more important that finding reasons for it to change.

In my view, this tape is again setting up for ANOTHER counter-trend rally that should go further and last longer than most expect. The key is to maintain patience until the longer-term indicators flash at least yellow lights - right now they are orange.
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