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The Brushback


Don't let him crowd the plate on ya!

I woke up very near my bed this morning curled in the fetal position, clutching a baseball bat. It was dark and I could see the green traces of the current time and date flashing on the clock across the room. "Huh, it's only Thursday," I thought to myself, "a whole day early to be waking up on the floor again clutching the bat." Yes, that's what the vicious lineup of pitchers they have on the staff of the Federal Reserve team will do to you. Think you've seen real heat? Think you've seen a screwball? Meet the Fed closers.

Of course, I just made that up. Everyone knows the Fed hasn't fielded a decent pitcher since Volcker famously retired Inflation in the early 80s. But that's a different story. I'm talking about my grim morning with the bat.

Just what inning are we in anyway? Yesterday Dallas Fed President Richard Fisher told the Wall Street Journal it might be the eighth inning, possibly even the ninth. Who knows, he added, we could be looking at extra innings. Of course, he didn't specify top or bottom of the inning, and for a baseball fan that's a crucial distinction; not knowing is, well, unthinkable... unthinkable like 10-year yields below 4%... like crude oil back near $55 stocks marching forward as if none of this really even mattered.

I think stocks are right. They say the bond market is smarter than the stock market, at least they say that at bond market cocktail parties. Maybe so, but stocks usually seem to get things right eventually, finally, when it really matters. So, Fed heat, bond chatter, crude oil splatter, where do we stand when I tally the evidence at my disposal?

1. Short-term: We're technically overbought on virtually all of the major indices. But strong markets have a tendency to stay overbought. Short-term indicators, such as the percentage of stocks above their 50-day moving averages, are positive and rising. Score one for Hoofy here.

2. Intermediate: No longer oversold as we were in April, but not yet overbought. Continuing improvement in most market index charts. Again, Hoofy has control here.

3. Long-term: The primary bullish percent indicators I follow through Dorsey, Wright & Associates are still negative, though the short and intermediate improvement will eventually show up in those indicators if it continues. Still, score one for Boo here, by just a nose.

My view, and this is not advice, is that in March we saw the very beginning, the earliest stages, of the resumption of the secular bear market that began in 2000. Significant market tops take time to form, and just when you think they are over, they are usually only beginning. Of course, I could be wrong, which is why for the past month or so I've tended to end the week sleeping on the floor with a baseball bat. But ultimately, even if I am wrong, I won't stay wrong. The disciplined process I follow won't allow that.

So that's the view from where I sit. Two outs and two strikes in who knows what inning. Have a great day as you fire up your own set of tools. And keep a baseball bat close by... just in case.
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