The markets’ beating and rally into the close has the bottom callers out in force claiming the lows have held. We’re not so sure. The three macro legs of the market stool (no pun intended) are still wobbly with the third leg, Asian growth, just coming onto the radar with last night’s collapse in the Hang Seng. The asset bubbles in Asia have only just begun to deflate, in our opinion.
Furthermore, the economic and political problems in the U.S. don’t look like they’re going to be resolved anytime soon and, in fact, looks to worsen with partisan bickering ready to heat up again over the budget. Prepare for no resolution until the first Tuesday of November 2012.
Europe? Lot’s of meet and discuss, but a low probability of a comprehensive resolution in the near term, in our opinion. Possible, but not probable. Eurocrat talk of banks needing capital with no TARP-like plan in place only exacerbates the downside in bank equities.
Therefore the jackhammers need to do a little more work on the S&P500’s 1101 August low in order to test its penetrability. Today was just too much of a stretch to get there as the market ran out of downside gas. An assault on the lows starting at today’s close 1129 will be a better test. If it can hold – which we have no idea if it will and have our doubts – we’ll start thinking and preparing for Santa Claus. Stay tuned.
(click here if chart is not observable)