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Bad… But, Is It Bad Enough?

This past Monday (Oct. 3) was the worst start for any October since 1998 for the S&P 500 and the DJIA. The real question is, "Was that the bottom and has the 'all-clear' been sounded?" I don't

Now, what about the world of ‘Elfdom’… This week, the Bull-to-Bear ratio is about 2.5-to-1 in favor of the Bears. Wow! This is massive improvement over just a couple of weeks ago when the ratio was over 600-to-1 in favor of the Bears. But, 2.5-to-1 in favor of the Bears, is NOT Bullish… It is certainly LESS Bearish, but it is definitely NOT Bullish. The market could move lower, but the patterns (see below) seem to indicate that a bottom could be in or forming.

The Turner Investor Sentiment Forecast provides a one-week directional forecast on the market, with [-5] being the most Bearish and a [+5] being the most Bullish. This is predicated on the ratio of number of new Buy Signals to the number of new Short Sell Signals for the previous week. The assumption is investors are becoming more Bullish the more lopsided the ratio becomes in favor of new Buy Signals; and, the converse is true; the more lopsided the ratio becomes in favor of new Short Sell Signals, the more Bearish investor sentiment.

The Turner CrossOver Oscillator provides an indication of the over-bought or over-sold condition of the market. The red line (New Short Sell Index) shows a technical direction and strength (or lack thereof) of investors to push stock prices lower, triggering new Short Sell Signals. The higher the Short Sell Signals line, the more Bearish the market. The black line (Composite Index) is the combined impact of both the new Short Sell Signals and the new Buy Signals and is an indication of the degree of oversold or overbought condition of the market. Buying opportunities exist when the Composite Index is moving higher. The higher this line moves, the more Bullish the market. Market bottoms are represented by a change in direction of the Composite Index from moving lower to moving higher. Market corrections become much more likely the Composite Index crosses the Short Sell Index from above the Short Sell Index to below the Short Sell Index. The market is represented by the green shaded area.

The Short Sell (red) line indicates that the market continues to be oversold, but is becoming less so. The S&P 500 (green shaded area) has begun to trend a bit higher indicating the market could be beginning a trend higher.

If your risk tolerance is high enough, now just ‘might’ be a good time to start picking up some blue-chip stocks. I have several in my watch list that are just begging to be bought and, as such, I plan to stick my toe in the water on the long side this week.

The Week Ahead…

Earnings reports for Q3 start dribbling onto the stage this coming week. I suspect the numbers will be reasonably good. I am more concerned about the forecasts than the results for Q3, though.

But, once again (and this is getting ever so tiresome), the driver this week could be Europe. Merkel and Sarkozy “vow” to come up with yet another “anti-crises” package by the end of the month. Really? Is this the one that finally solves the fact that there is no feasible way to deal with a massively fragmented and dangerously close to financial collapse conglomeration of individual countries that have for too long assumed that socialism is the key to economic stability and equality of financial condition? Oh… ok… I should believe THIS time it’s different and suddenly the take-life-easy Greeks and the work-for-a-living Germans and the never-met-a-socialist-Marxist-program-I-didn’t-like French (and a host of others) will agree to bail out bad behavior and completely over-the-top social benefits that utterly overwhelm sovereign cash-flows.

Ok, then… I feel ever so much better… (sarcasm meter is pegged, for those of you who take everything I say a bit too literally…)

Of course, we here in the US have our own problems. Our far-from-illustrious President has moved to the left of Karl Marx and has trotted out the old divide-and-conquer strategy (also a foundational tenant of the Cloward-Piven strategy). Of the two major pillars of this strategy, one is to pit us all against each other where the have-not’s are supposed to hate the have’s (when, in reality, the have-not’s, want to become a have… but, that logic is irrelevant it seems), and the second pillar is to push our country into such massive debt that our democracy collapses under its own weight. Throw in strong dose of Saul Alinsky, the founder of community organizing and hero of Chris Mathews and our current President, and we have the makings of an incredibly unstable political and social environment. Now, I know that some of my readers just go ballistic when I take a political stand. One of the (still) wonderful things about our country is you and I can have differing opinions and have the freedom to express those ideas. I do not understand why you would want another four years of Obama, but that is why we have election cycles. I, for one, cannot wait for the November 2012 election!

With the above incendiary remarks out of the way, what it all boils down to is this… regardless of whether or not you are a liberal or conservative and whether or not you love our President or can’t stand him, one thing is for sure… there will be no policies or bills or amendments or leadership in Washington over the next 12 months that will be beneficial to either ideology, and as such, the lack of political leadership or in some cases, the presence of the wrong leadership (on both sides of the aisle) will not be good for the stock market. Markets abhor the unknown and we have a LOT of unknowns right now.

But… as bad as things look, I am not quite as Bearish as I was a few weeks ago.  Thing might… just barely might… be closer to a bottom than not.

So… This coming week, I plan to dabble ever-so-lightly on the long side by picking up a couple of my favorite blue-chip stocks. I may hedge my long positions with some bear-biased trades. I will probably stay at least 70% in cash.

Speaking of my trades…Please do not expect to see 100% of my trades, 100% of the time. I run two distinctly different companies… one is a subscription-based company, which is CycleProphet; the other is a registered investment advisory company, called Sabinal Capital Investments.

I hope you have a great week in the market!

Your getting-packed-while-monitoring-the-market traveling portfolio manager,

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