Thursday, February 19, 2009

Stock market still in a trading range as the moment of truth continues

Traders and short-term speculators made a half-hearted attempt to push the stock market below its November low on Wednesday, but they failed. That does not necessarily mean that investors are in the clear, as traders and short-term speculators could make a couple of more attempts at pushing for a new low before throwing in the towel. The key is that traders only make money if the stock market is moving in some direction, regardless of whether it is up or down. They may engineer a modest "dead cat" bounce to draw in some suckers and then reverse and use the weak-will of the suckers to build up a little momentum to push to a new low. Maybe, but not guaranteed. Either way, within a few days people will conclude that either the November low has held or a new low will be set to begin the next leg down of a so-called "primary bear market."

In theory, the stock market is supposed to be a barometer of the economic outlook six to nine months in the future. Yes, the immediate short-term outlook is still quite gloomy (as the stock market "forecast" early last fall), but there is a great divergence of views about the economic outlook for the second half of this year. Some honestly believe that all of the fiscal stimulus and even the most heroic efforts of the Federal Reserve and Treasury will "fail", while others insist that there will be a modest recovery, lackluster, but a recovery nonetheless. What we are seeing right now in the market is a war between these two camps. Personally, I am in the modest recovery camp.

Read more of my comments from yesterday which are still relevant and will continue to be relevant until the market either marks a "double bottom" and reverses and heads back up in its trading range or finally makes a bearish break below the November low.

-- Jack Krupansky

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