Bullish Factors As Possible Fire Starters In The Coming Months

The major indices are now sitting within striking distance of the October lows and the next two days may go a long way to predicting the action heading into the holiday season. The Dow (^DJI) closed down 411 points or 4.7% at 8282, 107 points from the closing low on 10/27. The S&P 500 (^GSPC) lost 46 points or 5.2% and closed at 852; this is only 4 points from the October closing low. The tech-heavy NASDAQ Composite (^IXIC) finished lower by 81 points or 5.2%. The NASDAQ closed at the lowest level of the year breaking through the prior low of 1505. Intraday the NASDAQ has support at the 1493 area.

THE BOTTOMLINE: The market was ugly today (Wednesday) and not too surprising after what I had to say in yesterday’s commentary. And it appears things just got worse after hours when semiconductor giant Intel (INTC) slashed forecasts on significantly weaker demand. This will definitely weigh on stocks tomorrow morning and the volume is likely to be above average on the news. There are some thoughts going through my head that this may actually be a good thing for the market and a big sell at the open may create a short-term buying opportunity for nimble investors. On the other hand, buying a new position as the indices break to lows is extremely aggressive and not the best reward-to-risk setup.

LIFE PRESERVER IN A SEA OF GLOOM

The news right now surrounding the stock market, economy, election, etc. has all been churned to become very negative and somewhat frightening by the media. Granted, not all the news is rosy, but when times are tough for ratings, the media will pull out all the stops to turn the world into a doom and gloom situation.

Even though I can be considered a member of the media to some, I still try to keep my distance and my own thoughts on the situation. I agree the economic numbers are not good and will probably get worse before they get better. However, creating a panicked American population does no one any good except for the media outlets looking for higher ratings. More people will tend to watch the news when things are either really good or bad, if there was nothing exciting, viewers would turn to a rerun of Seinfeld. Please remember that the media is trying to entertain as well as increase ratings, giving actual useful information has been put on the back burner.

So in this sea of gloom where can we find a life preserver? The way I view the current situation is that the market is similar to a pile of kindling that is ready to be lit, but no one has been able to find a source of fire. Without matches to get the kindling fired up, we may have to turn to using the sun as a source of heat that can eventually be converted into a fire starter. As bad as the bulls would love to use matches to light a fire under this market, there are not any available at this time and therefore the only way to get it going will be with time (sun). Time is something that most of us have plenty of, but lack the patience. Keep in mind that once the kindling catches fire, it will shoot up in flames just as the market will begin a new bull market with trillions of dollars coming back into stocks.

Specific bullish factors I see as possible fire starters in the coming months include (but are not limited to):

Seasonality - Since 1950 the best three months of the year have been November, December, and January. November begins the “best six months of the year”. And many bear markets have found a bottom in October.

Liquidity - The nearly $2 trillion the government has pledged to pump into the economy will begin to take affect and could lead a propping up of the markets.

Anyone Left? - It appears most sellers that are planning on selling have done so and this is shown in the light volume on the recent down days. There will come a point where the sellers no longer are in control and this will result in a sideways market. The one caveat is that buyers must begin to trickle in to take this market higher.

Holiday - If consumers actually spend as they said they would in a recent study during the holiday season, we may be pleasantly surprised. The combination of basically no buying the last two months and ridiculous bargains may lead to better than expected holiday sales. I know I was tempted to buy a new TV this week after coming across a highly discounted sale.

I am not sure what will be the final trigger to this market bottom, but I believe a combination of the above and a few more will help this market eventually find stable ground.

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