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"Deep thoughts"


Today can be taken two ways. It can either be the last day of a very tumultuous year, or it can be the first day of the rest of your life. As much as it goes against my nature, I am going to opt for the first day of the rest of my life. This morning on the way in, Linda asked me what my New Year's resolution was going to be and I said the same resolution I have every day - to live each day like is was one of my last because you never know. A few years ago I would have thought that meant getting crazy and wild, but today I know that means being the best I can be with no regrets - ala, Bill Murray in Groundhog Day. (As I reread this for editing I started laughing because I thought of that Saturday Night Live skit they used to do called "deep thoughts." - THAT was a funny skit.)

Anyway, it looks like 2003 is going to start out quite a bit like 2002. The action is a little different going into the beginning of the year, but the geo-political (risky), economic (uneven), valuation (above average), corporate profit growth (weak top line), interest rate (near historic lows), Fed (greater than expected ease as preventative measure) and hope (that the next year can only bring better results than the prior year) are strikingly similar.

The truth of the matter is that trying to predict what the next year is going to look like is something I have never subscribed to because at the end of each year, either up or down, I am amazed at the factors that "came out of nowhere" to influence stocks. That is truly unpredictable. Believe me, as Market Strategist for Kirlin Securities and someone who is directly involved in the financial press, I could come up with something using this great indicator and that statistic to support my view to make a great story, generate some level of business and obtain some airtime. Then I think...what's the purpose if it is a guess and something that is entirely unpredictable?

Instead, what I would like to do is outline what the next few weeks and months may look like in order for people to make a decision based on their own investment or trading objective. I continue to believe that much like the year ago scenario, the markets are in the twilight zone, which is the action that typically follows a significant rally that has moved up more than the current or even future fundamentals justify (perception trade). It is that period where you know the upside was overdone given the fundamental backdrop, but there isn't real evidence to prove it yet, because the economic and corporate profit news is still some time away.

In the twilight zone there are times when traders and investors are slapped in the face with a news item that suggest stocks should tank, only followed by another news item that suggests improvement and a potential rally. Frankly, the news probably doesn't change much, but the reaction does based on the level of overbought/oversold indicators and proximity of major support or resistance levels.

I don't need to go over the near-term oversold condition and the intermediate-term loss of momentum again, those factors haven't (unfortunately) changed over the past few weeks. They suggest a near-term bounce could happen at any time, with even a moderately positive news item given December's decline, but that any rally is unlikely to be sustainable due to loss of momentum over the intermediate-term. Again, this hasn't changed.

What has changed over those last few weeks is that the yield on the 10-year note is now at levels that sparked a snappy rally in mid November as "asset allocation" banter picked up and the markets are now near some important support areas that should hold for the time being (Exhibits 1-3).

Exhibit 1 - The yield on the 10-year note is likely to accelerate asset allocation banter...

Exhibit 2 - ...and is at levels that led to market low in November

Exhibit 3 - The NAZ has now approached support and is similar to SPX

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Have a healthy and Happy New Year
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