Triggers & Tipping Points

Futures are higher this morning on positive earnings news, strength in Asian and European bourses, and a dearth of any new credit disasters. (It is also the last day of the month).

As we mentioned yesterday, investors should watch the quality of this overall bounce, keeping a close eye on volume and breadth, to determine the next move beyond this week.

While there was plenty of teeth-gnashing angst over this very minor correction, I have not seen the sort of capitulatory panic that typically marks the end of a major selloff.

Some commentators have pointed to Thursday as a 90/10 day — more than 90% of the volume was to the down side — but historically, that marks a bottom only when it comes after a long decline. A 90/10 down day within 5% of a high has never been shown to be a reliable buy signal.

Considering that we have yet to see a 10% SPX or Dow correction in this 5 year old Bull, what might actually cause that major dislocation? MarketWatch’s in-house curmudgeon, Paul Farrell, gives us a menu to choose from:

1.  War/military defense budget busting
2.   Real estate bubble raging
3.  Foreign trade imbalance, trillions new debt
4.  China’s economy overheating
5.  Private-equity credit imploding
6.  ‘Homeland Insecurity’ failures
7.   Hedge funds hurting retirement plans
8.   Oil rocketing toward $100 a barrel
9.   Weak U.S. dollar keeps sinking
10.   Federal budget deficits
11.   Social Security entitlements
12.  Medicare’s massive deficits
13.   Health-care-insurance deficit
14.   Climate change fuels global wars
15.  Personal savings shortfall
16.  Consumer debt surging
17.   Corporate pension defaults
18.   Local government pension deficits
19.  International credibility deficit
20. Washington politics in endless gridlock

I find 7 of these (in italics) that represent serious threats, some short term, some long term.

Which of these are real threats? Which are hyped up and already discounted by Mr. Market? What unknowns have been omitted from the list? The comments await your insights . . .


New contest: Pick one big tipping point
You decide: which of 20 triggers will end ‘aging bull’
Paul B. Farrell
MarketWatch, 7:54 PM ET Jul 30, 2007

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