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Michael Santoli Presents: Listening to the Markets


I keep reminding readers that the '95 scenario is a stretch at best and a trap at worst...


Nice chatter on the Buzz yesterday. Market-wise, there's something that keeps nagging at me: I wouldn't call myself bullish and am not looking for a reason to turn that way. I enjoy the luxury of not needing to have a sharp market view and you know I'm in the "mutually assured frustration," scared Hoofy/tired Boo camp, with a decent probability that we're entering a true bear phase. Like you, I keep reminding readers that the '95 scenario is a stretch at best and a trap at worst, and that an end of Fed tightening has not historically been a Buy signal. I'm quite mindful of your habitual reminders not to feel bullish in strong tapes and bearish on pullbacks.

But here's the thing: Remember how misguided it turned out to be when the dip-buying bulls, all through 2001 and into '02, kept saying "Don't fight the Fed," when that's exactly what you should've been doing? Historical tendencies were actually a hazard at the time if you followed them.

I think there's at least a chance that the Fed quitting here could seem to the market to be an excuse to keep rallying for a while despite historical tendencies and broader risks, mostly because it would be an implicit ratification of the still-lush liquidity regime. I liken these periods to a sugar-rush rally, which are fun until the "insulin" of reality floods in and saps the energy. This wouldn't alter the unfavorable supply/demand picture for equities, and it would be a repreive rather than a pardon. But still. Wobbly crude (short-term) could be yet another excuse for some buying to burn off a measure of the cautious buyside sentiment (again, only short-term cautiousness - see this week's Merrill fund manager survey) that's developed. This is nothing but me thinking my way (probabilistically) through the implications of what has become a bit of a cozy consensus among the chartist types that we're in for the textbook "four-year cycle low," etc.

Maybe up/down hard/up, rather than an immediate down/up?

Then again, until we cross 1300, or shuttle back below 1220, the game is simply being played between the 40 yard lines, right?

-Minyan Michael Santoli, Senior Editor, Barron's

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