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Keeping an Eye Out



Finally, after today the option expiration will be out of the way - but then we have everything else to deal with. Yesterday I was guest host (as I am today) on CNNfn with Rhonda Schaffler from 9:30-11:30am. It is a great show to do because for two hours I get to play interviewer instead of interviewee. What I found yesterday through the discussions and interviews was that everyone is as frustrated and confused as everyone else. The phrase I kept hearing was that people were "cautiously optimistic." As I sat there during the breaks, I pondered what that meant.

In my view, when someone says they are "cautiously optimistic," they might as well say, "I am really hoping that things will get better, but find very little supporting evidence." Basically, it is the classic hedge to give when one is totally confused and doesn't want to be wrong. If the market goes down, the focus is on how "cautious" one was and if it goes up the focus turns to how "optimistic" one was. Given the absolute lack of visibility on any issue as it relates to the market, I don't blame people for using the phrase right now. The market is never easy to understand, but the amount of uncertainty and distance from an identifiable resolution in the fundamental, technical, geo-political and economic backdrop is incredible. Frankly, this level of confusion is probably indicative of being closer in timing to a historic low than a precursor to an even more historic decline.

That dovetails with what my indicators look like. Virtually every one of them looks similar to prior oversold bounces that took place right before the final and nasty part of an intermediate-term move lower. Why then, wouldn't I want to say "sell everything?" As I have tried to indicate in past columns, I am looking long, but don't have the evidence to support a long side move quite yet. I have a difficult time believing that a lightning bolt is going to come from the sky and make; valuations cheap, earnings surge, geo-political tensions ease and that damn political rhetoric subside. Given that it is still winter and lightning is unlikely, I instead turn to the technical tealeaves.

The intermediate picture suggests that if the market is going to decline, it should accelerate soon. If it doesn't, then that is a sign of a "lack of weakness" meaning there aren't any motivated sellers left. Clearly I expect that final leg down, but have to be watchful for potential positive technical divergences. The market is no long oversold on a near-term basis and the recent two-day spike higher had the classic signs of a temporary bounce to alleviate an oversold condition. The bounce did, and now in order to be a buyer, one has to find a different reason.

I don't see such a reason right now, but am certainly keeping my eye out for one.

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