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The housing numbers were just plain trouble, no need to mince words. The DOW shrugged it off thanks to a cigarette company (I guess if your home lose 20% of its value you will start lighting up, although I think Seagrams would be a better fix), but the underpinnings were not there for the rest of the indices and only option expiration kept the markets from correcting further. Will this all be shrugged off next week as traders sprint into the usual Thanskgiving rally? There is even talk of a new bull market, another four year cycle and that the May correction was it, no more, basta, done. OK, maybe. But if the economy is starting to slow down, as opposed to getting out of a recession and accelerating (your usual new bull paradigm), this would seem somewhat implausible. Excess liquidity has been driving the markets, that does not mean it can last if the US consumer starts a strike, even a modest one. All time highs are not supposed to be accompanied by a slacking consumer or even a less than stellar consumer. I won't argue with price, and you should not as well, but we can also remain a little more grounded than the screaming lunatics. Of course if the housing numbers were a fluke and consumers flock to the malls without a care in the world and give us the biggest Christmas season ever (that is what is priced in, there is no room for error now), then we deserve to have a rally that continues unabated.
First things first: we are due for a quick visit to the 10 day moving averages and with equity pc ratios hitting the .40's, VXO closing at 9.84 (that's the old VIX), seven days and no test, we are due. Let's see if that holds when we get there. We will evaluate after that.

This entry was posted on Friday, November 17, 2006 at 11/17/2006 07:49:00 PM. You can skip to the end and leave a response.