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Winter wonderland? NOT!!!

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I want to take the snowstorm in the Mid Atlantic and Northeast regions as a great lesson on the difference between perception and reality. As the various media outlets showed the images of a winter wonderland, many watched from afar dreaming of making snow angels, sledding and all around winter fun. WRONG!!! As much as I love to hang out with the kids and goof around, I spent from 7:30am yesterday morning until 6pm in the evening shoveling my driveway and then going to help car pool buddy Linda dig out. I am so sore that I can barely lift an uptick!

Speaking of uptick - that appears to be just what we are going to get this morning. With the news of a coming downgrading of the terrorism alert system, nothing happening (other than a blizzard) in the US and no imminent attack on Iraq, there is clearly some level of relief priced into the early futures. They are not up huge, but on top of a very strong close Friday, being up at all is saying something. Friday was an important day in that it cleared the slate. You can tell what the dominant sentiment is based upon how the market acts heading into a long weekend. If the shorts have been overly dominant in the days and weeks leading up to the holiday, many will cover to go home flat rather than risk giving it all back on a possible news item over a three-day weekend. The opposite happens if the market is spiking higher ahead of a long weekend. Traders are likely to sell and go home flat to avoid any giveback when trading reopens the next week.

Obviously, the shorts were the dominant force as the market surged in the last hour despite worries regarding terrorism and Iraq.

How long can the bounce last and is the recent low strong enough to generate a rally similar to prior significant countertrend rallies over the past three years? The simple answer for me is "I doubt it." Not one of the indicators that I use, public or private, suggests that the major equity indices are anywhere near where they were in any prior rally. Just as an example, the 10-day moving average of advancing to declining stocks on the NYSE was -700 or worse near the bottom last October. As of Friday's close, the reading was -374.

Not being near the prior extreme readings doesn't preclude a bounce; it simply means any bounce would likely be limited in terms of both price and time until the intermediate-term indicators get closer to extreme levels. As I suggested toward the end of last week, when the market is getting pressed selling may not be the right course of action. Remember, the news backdrop hasn't changed that dramatically since last Thursday from a fundamental, geo-political and intermediate-term technical standpoint so if stocks are bouncing because they are so oversold near-term, what happens when they are no longer oversold near-term?
No positions in stocks mentioned.
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