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The toughest job on Wall Street right now is that of a trader. The last few days have included a number of instances where it looked like the market was off to the races and other times where it looked like the end was near. And that all comes in the first hour of trading! In my view, given the volatility of the news backdrop, it is practically impossible to gauge intra or inter-day how the market is going to move. Clearly, there is very little conviction in either direction. Snapback rallies like yesterday keeps the short side traders trigger-happy and the war rhetoric and a cocked US gun keeps the long side traders trigger-happy.

The market shifts direction so quickly, that it is nearly impossible to remain unemotional and consistent - two key facets of successful investing (or trading for that matter). Each morning when I walk into my office I go through my various indicators by hand. In other words, in order to get the percentage of overbought stocks in the S&P 100 (OEX) I view the chart of each stock in it. Many now use computer programs to monitor various indicators, but like anything else, there is normally more meaning in the exercise that just getting the percentage. One can only find the nuances of an indicator doing them by hand and personally.

What I found this morning going through the NASDAQ 100 (NDX) and OEX is that despite the perceived pain in the market, 54% of the NDX components are in overbought territory with only 10% oversold. It is more even in the OEX where 25% are overbought and 28% are oversold. NONE of these daily readings are extreme, but serve to highlight that now even the near-term technicals can be viewed as mixed at best.

So lets put this into perspective;

· Near and intermediate-term technical backdrop is mixed
· Fundamental backdrop is mixed at best
· Valuations are high, but interest rates are low - mixed
· Earnings outlook - HPQ certainly paints mixed picture
· Iraq - mixed to say the least
· Other geo-political fronts mixed as well - ie. North Korea
· Sentiment indicators mixed - still more bulls than bears in Investors Intelligence gauge of newsletter writers
· Most think a fourth down year in a row unlikely (myself included) but money keeps leaving equity funds
· Mixed message coming from Washington regarding economic stimulus

Basically, I am very mixed up. No matter what I look at, I get mixed readings from both a fundamental and technical perspective.

As you all know, I continue to believe that the fundamental backdrop is unlikely to change anytime soon. From a fundamental standpoint, in order to have a sustainable bull market, valuations need to become attractive (low) by either (a) a sharp price decline, and/or (b) explosive earnings growth. The positive valuation argument is that the low level of inflation and interest rates make equity valuations cheap (p/e's). While that may be true (I have used that view myself in the past), it hasn't worked for two years now. Over the past two years, anyone even remotely interested in the equity market has read or been told something about the "Fed Model."

As I indicated above, the charts, the indicators and the sentiment gauges "feel" like they should be incredibly oversold, but they simply aren't and could only be considered mixed at best as I have outlined here and over recent columns. Everything is mixed, which suggests that until a definable resolution can be within earshot, sitting out the current emotional news driven volatility might make the most sense.

There are basically three things that could change my intermediate-term view (remember that I DO NOT make trading calls) that the outlook for stocks is neutral at best near-term;

1. If a war related dislocation brought the market down enough to get the near and intermediate-term indicators near levels where prior lows have been established
2. If Blue Chip corporate America began saying how sharply demand was picking up and began guiding estimates higher.
3. If neither of the above happened and the major market indices moved above their late November and early January highs on convincing volume.

While there is always potential for sharp bounces, they should remain fleeting until some or even one of the fundamental, technical or geo-political issues are resolved.
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