TEI Insight:
The Question Stands…

A month ago we looked at the broad U.S. indices and told you that the market was sitting in pretty good shape, all things considered. This is what we offered at the time:

Well, we’ve come through the tricky month of September and managed to close out the 3rd quarter in fairly decent fashion, all things considered. As things stand now, the broad indices are flagging bull, with both the INDU and the SPX within relatively easy distance of tagging historical highs in very short order.

We did discuss quite a few issues that are still very much on the table, including the election that’s now just days away, the fiscal cliff still looming in the New Year, a tricky earning’s season (which has disappointed more than had been expected) and the problems that continue to plague Europe, the Middle East and China. There was also the issue of seasonality and the real fear of an October surprise.

Well, we did in fact get an October surprise in the form of a horrendous natural disaster that has shut down much of the Northeast and mid-Atlantic regions…as well as the NYSE and most trading over the first two days of this week.

The net effect is that we’ve seen some pretty decent retrenchment on the part of the major indices. The INDU retraced to test the 13k mark, but held in the face of some shaky economic numbers and disappointing corporate reports…all during what is a dicey month for the market.

The good news is the index remains in pretty fair shape as we enter the last couple months of the year—generally considered market friendly months. Moreover, despite the recent swoon, the INDU remains within 400-odd points of the September high and roughly 900 points of the all-time high.

As for the SPX, the story is much the same. The index tested and held at the 1,400 level. It’s now managed to trade back within 20 points of where it stood a month ago and less than 50 points off of the September high of 1,474.

At this point it’s fair to assume that the bulls have to feel like they’ve dodged a bullet (for now) and are likely to be emboldened given where the broad market stands. Bears on the other hand have to be wondering what it will take to tip this market into further decline and a test of the bottom-end of the channel that was formed off the March ’09 breakdown lows.

What is sure is the fact the markets have come through the past month in relatively benign fashion. They’ve managed to coil even more tightly and the likelihood of a resolution move seems that much more inevitable. Looking back to last month, we asked if there might be a hidden message in the charts…something thatportended a signal that perhaps we’ve entered a new stage and now find ourselves on the cusp of emerging from the worst geopolitical and macroeconomic period of our lifetimes.

Can the emergence from the turmoil of the past dozen or so years be placed in the same category or given the same weight? Dunno… we shall see. But the fact is we have come through the worst economic period since the Depression. We have existed for some time on the brink of economic disaster. Yet we have come through it all intact…changed, but very much still in the game.

Moreover, when you put things into perspective, we have survived in this past decade just about anything you could possibly envision, short of nuclear war. Ironically, that is more of a real possibility today than at any time since the Cuban Missile Crisis. Notwithstanding such a chilling prospect, the question at hand is whether there is indeed a message in the market for us to discern?

That question stands…and time will provide the answer…


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