Wednesday, May 28, 2008

Still in suspension

Stocks were under the most severe pressure since the March bottom last week. That attention should be focused on the burdened consumer was never a surprise -- many that have called the March bottom correctly also predicted a later consumer-riven recession bottom. Still, the all-important question remains whether the March bottom will be broken. The answer remains elusive the first trading day after the Memorial holiday as the S&P successfully defended its 50 dma.

The positive return on Tuesday came mostly from a retreat in oil prices. However, we know that gas prices are stickier on the way down than on the way up, thus the relief felt by consumers will not be nearly as much as the drop in oil would indicate, not to mention that gas prices increased slower than crude in the first place. One way or another, I'm not letting headlines of the day sway own opinions. I still believe that the March bottom will hold and the S&P will be flat to slightly up at year end. I base this opinion partly on the Armstrong cycle which displayed outstanding accuracy in the two past turning points (and which predicts a rising market into 1Q 09), and partly on the four-year presidential cycle. Though I don't have a reference, I recall that the first year of a new president's term is especially ominous for the stock market if there's a change of party at the White House.