As we head into holiday shopping time, third-quarter earnings season is coming to a close with 95 percent of S&P 500 companies having reported. There have been many upside surprises (80 percent), but as consumer spending and the underlying economy have remained weak – most have been due to maneuvering by management, including inventory controls and cost cutting, as well as lowered analyst expectations.  Read more...

Short-Term Key: Negative Long-Term Key: -14 (Neutral)Read more...

We seem to be witnessing a battle between two sets of indicators at the moment, each with its own opinion on which way the market is headed.

On the one hand, as we have been expecting, our Long-Term Master Key has dropped below -80%, which is a “sell” signal. On the other hand, we have a lot of technical and economic evidence that argues against a sharp fall in the market.

In your last update, we explained why a so-called “sell” signal in the Long-Term Master Key would not send us into a panic mode. Before you start dumping good stocks, let's review the situation.

In the first place, the market has already retreated significantly from its highs last fall, perhaps in anticipation of this week's “sell” signal. So prices today are quite reasonable.

We should also remind you that there's nothing magical about the -80% figure. It's just a rule of thumb based on historical data. But we can't really say that there's much difference between -80% and -79%.

More importantly, we should point out that the Master Key has a certain built-in bias due to the fact that it relies on the price of oil as measured in U.S. dollars. This bias towards U.S. currency might not be as appropriate anymore when considering global oil prices. For instance, if we measure oil prices in terms of the Euro or other world currencies, they are nowhere near the -80% threshold.Read more...

Gazing at the road ahead, we see a few potential potholes. Foremost is that the broad market has been underperforming the big cap stocks. Also a bit troubling is the utilities have also been weak recently. However, our guess is that this does not indicate any serious weakness in the market. Rather, it has much more to do with mutual funds selling shares to lock in gains they’ve made in sectors such as utilities and smaller stocks.

One of the strongest performing sectors, which seems to have pulled back recently because of fund selling, is energy. With few exceptions, mutual funds close their year on October 31^st. Consequently, funds often sell shares in October to lock in profits and also for tax reasons. As we pointed out in the last update, this was likely the case with the “urgent” selling of Exxon – most likely by the ContraFund. (Exxon reported record profits last week, proving the company is in excellent health.)

Overall, we expect the broad market will recover in the next few weeks and remain bullish – at least through January. The November-January period is historically the strongest for stocks. With specialist shorting close to all-time lows and earnings growing nicely, our bet is that the next three months will be no exception.

But after that …

OUR TAKE ON THE NEW CHAIRMANRead more...