Michael Evans
2/28/2006, 08:17 PM
If the market had risen today, the negative technical signals that we have been faithfully describing for the past few weeks in these pages would have disappeared, clearing the way for further short-term gains. But of course it didn't.
Now it may be that the market tanked because of the comment by Google's CFO that the company wasn't growing as fast any more, or because of the approaching civil war in Iraq, or because home sales, consumer confidence, and Chicago purchasing mgrs were all weaker. For all I know, these factors also had a hand in the drop. But I don't think it's a coincidence that this market simply did not want to go higher. We can also judge that from the extreme lack of volume during the past six days when the market was trying to claw its way to new (intermediate) highs.
Having said all this, the market lacks conviction in either direction. I'm not predicting a major correction here either. Instead, I think we will see more of the same -- basically a flat market, with some bias in the downward direction.
Admittedly the Iraqi civil war is a wild card. As it worsens, we may seem some faint-hearted investors bailing out. The reason I don't ascribe more weight to it is that, at least among savvy international investors, it has been expected for several months, and hence built into current prices.
Maybe the civil war will come as a complete shock to the upper echelons in Washington, but that's not what this column is about. It is about how the market will react. And if it's not a surprise, the impact will be muted.
In the meantime, talk of 4% to 5% real growth this quarter, plus signs of increasing inflation everywhere except the core CPI, make it a virtually certainty that the Fed will boost the funds rate to 5% this spring, and a better than even chance it will raise it to 5 1/2%. Again, that's not much of a surprise. But on balance it will weigh on the negative side.
Now it may be that the market tanked because of the comment by Google's CFO that the company wasn't growing as fast any more, or because of the approaching civil war in Iraq, or because home sales, consumer confidence, and Chicago purchasing mgrs were all weaker. For all I know, these factors also had a hand in the drop. But I don't think it's a coincidence that this market simply did not want to go higher. We can also judge that from the extreme lack of volume during the past six days when the market was trying to claw its way to new (intermediate) highs.
Having said all this, the market lacks conviction in either direction. I'm not predicting a major correction here either. Instead, I think we will see more of the same -- basically a flat market, with some bias in the downward direction.
Admittedly the Iraqi civil war is a wild card. As it worsens, we may seem some faint-hearted investors bailing out. The reason I don't ascribe more weight to it is that, at least among savvy international investors, it has been expected for several months, and hence built into current prices.
Maybe the civil war will come as a complete shock to the upper echelons in Washington, but that's not what this column is about. It is about how the market will react. And if it's not a surprise, the impact will be muted.
In the meantime, talk of 4% to 5% real growth this quarter, plus signs of increasing inflation everywhere except the core CPI, make it a virtually certainty that the Fed will boost the funds rate to 5% this spring, and a better than even chance it will raise it to 5 1/2%. Again, that's not much of a surprise. But on balance it will weigh on the negative side.