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Monday, September 18, 2006 | 10:30 AM
in Economy | Investing | Markets | Psychology/Sentiment | RR&A | Technical Analysis

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That¶s one of the questions I ask myself all the time. The answer is a combination of economic shifts
and technical characteristics that more typically underpin healthier markets.

On the economic side, if things started to improve across several metrics we track: Income and
wages, Consumer debt and spending patterns, interest rates, and money supply, it would bode
well for the macro environment. Conversely, if the environment got acutely worse ± a rapid
spending drop off for example, or a surge in unemployment, that would move us closer to a cycle
bottom, and ironically make me want to start thinking more bullishly.

On the technical side, this market seems to want to go higher, only in an ugly way. The internals
do not impress: The A/D line ± the number of stocks advancing versus declining ± is
unimpressive. The new 52 week High/Lows is particularly ugly. They certainly do not reflect
broad participation in an up-move by lots of equities ± and that¶s what we typically see during
strong sustainable bull moves.

Make no mistake about this: we are in a period where the reward is modest at best and the risks
remain high. These technicals are why we are not very long here, and continue to raise cash on
rallies, but the price action ± grinding higher regardless ± explains why we are not yet short. It is
a ³tweener´ market, and that implies one undergoing a transition.

The past few weeks saw a lot of headline risk come out of equities: The Fed on hold, Oil process down
18%, Gold pulling back to support at $580. While Iraq remains a morass, the Iran nuclear problem is
also unresolved, but at least the parties seem to have ratcheted down the saber rattling.

Sentiment may also help explain why the market has been so reliant: As long as so many people
were looking for a collapse or a correction, it was unlikely to have happened. So this spate of
good news allows the bulls to reassert themselves, and that perversely makes the correction more
likely.

In other words, it won¶t happen when everyone is looking for it to.

We continue to watch and wait for our pitch to move to the short side.


A few items to look for today and the rest of this week:

1) We take a look at the S&P 500 Homebuilders Index, along with a few components (today);

Also.be sure to check out these two data sets on Real Estate:

-Comstock claims: The Hard Landing For Housing is Already Here;

- Typical profile of sub-prime mortgage applicant, according to a San Diego sales

manager of a branch office of a national lender;

2) A special situation, low priced stock we will be recommending (today or tomorrow);

3) CNBC TV: This week, ´


ny moves to 8pm, and taking its old slot on a one week
trial will be



 . It¶s a new program that CNBC thinks can be an anchor at
that slot. They are gearing up in advance to compete with the upcoming Fox business channel.

I have been contacted by the producers of the show, and asked for feedback ± about the format,
content, segments, guests and 4 panelists. If you have ever wanted to help shape a new tv
program, then feel free to submit comments ± good and bad ± to me about your take on the show.
If you want to remain anonymous, let me know that also.

4) I found this chart (via Matt Blackman of EquiTrend Weekly Market Watch) particularly
insightful: