- The Big Picture - http://www.ritholtz.com/blog -

A Promising Start, But . . .

Posted By Barry Ritholtz On January 26, 2005 @ 11:43 am In Economy,Markets | Comments Disabled

I’ve been hearing a
lot of chatter rationalizing the weak market the past few weeks – as well as
euphoria for yesterday’s rally. I must take issue with much of the econ-blather
coming out of my screen lately:

Seasonality? It’s been a no show. Pre-empted by the overextended Q4 rally, it
certainly has not helping lately;

Mutual fund inflows? Also MIA. Institutional buying and overseas appetite for U.S.
equities are similarly missing;

Earnings? While 15.55% year-over-year earnings gains is respectable, it’s
the unintended beneficiary of high Oil prices from energy firms – back out that
sector (Energy sucks the air out of the room for every other group) and the
S&P500 gained a mere 10% Y-o-Y. While that’s not bad, it represents a
broader negative trend. Either a 10 or 15% profit gain reveals the continued
deceleration of earnings momentum. This is foreboding for equities 12 months
out;

Non-existent
inflation?
Hardly. Inflation is by any measure rising –
commodities are in the midst of a 2-year rally; Producers are being squeezed –
and they have been having a hard time raising their prices, squeezing margins;

Lower long-term
rates
: The fact the long term rates have been
stable while the Fed tightens only tightens the yield curve — and that is
hardly a good thing.

The bottom line is that the above reasons are not why the market hasn’t gone
higher since 2005 began – they, are instead, an explanation as to the longer
risk factors to the markets in the back half of 2005 and into 2006.

As to yesterday’s
bounce:

It was NOT particularly impressive. Internals were only fair, with the
OTC A/D a mere 8/7, and up/down volume barely over 2 to 1. NYSE, A/D was 17/15.
up/down volume even less impressive 7/5. Volume was similarly lackluster.

I am not yet
convinced yesterday’s rally (and today’s follow through) is the end of the
downward action. While I continue to expect a lift off the lows in late
January/early February, I would prefer to see much broader participation (i.e.,
advance decline), a significant volume thrust, and much, much stronger volume.


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/01/a-promising-start-but/

Copyright © 2008 The Big Picture. All rights reserved.