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Fourth Quarter

 
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arthur
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PostPosted: Sat Oct 09, 2004 6:29 am    Post subject: Fourth Quarter Reply with quote

There are both positive and negative forces that will affect the stock market near term. Currently, there is $5 trillion in cash sitting on the sidelines. Institutions, e.g. mutual funds, hedge funds, pension funds, insurance and local government entities, etc. will need to put cash to work, to make up for a flat performance in 2004 (see daily year-to-date SPX chart below). Also, although monetary policy is less accomodative, it's still far below neutral. Moreover, U.S. firm's balance sheets, in general, are stronger, with more cash for investment.

U.S. government bond yields are low and oil prices are high. A rise in bond yields and a fall in oil prices will both be positive for the stock market. Uncertainty about a terrorist attack before the election and the outcome of the election will be removed soon. Employment data is a lagging economic indicator. So, the employment picture, going forward, may improve substantially.

There may be significant tax selling in Oct, where the weaker stocks are sold. Also, third quarter earnings and fourth quarter guidance will be reported in Oct. However, guidance may be unclear.

I tend to believe, SPX has already hit the low for the year, and may be creating an inverse head & shoulders pattern with the right shoulder incomplete. However, SPX may hold its 50 day MA instead. So, I see strong support at 1,110 (on the rising 50 day MA) or around 1,080 (the right shoulder).

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