Great. Now what.
The NASDAQ has logged the best two weeks in its history. All the major market indexes have reinstated back above the long-term trendlines that they broke last month. The Fed has lowered interest rates for the fourth time so far this year. We’ve gotten through the worst of earnings season.
So this week is going to be all about deciding how we really feel about all that.
Bull: We’ve just had the best two weeks in history on the NASDAQ. It’s a “V”-bottom!
Bear: A “V”-bottom just means that these great two weeks managed to get us back to where we started six weeks ago. Big deal.
Bull: The market’s come down so much it’s a bargain. The shorts will have to cover, and all that sidelined cash will have to come in.
Bear: That’s good for a pop — but we’ve had the pop already. Valuations are still too high. For all the pain, we’re still near all-time-high p/e ratios. Even the S&P 500 has a higher p/e today than it had at the top in 1929.
Bull: Don’t fight the Fed! Greenspan’s going to keep lowering rates until he gets the economy moving again.
Bear: All these rate cuts haven’t even budged the economic slowdown. And anyway, in Japan even four years of zero rates hasn’t helped.
Bull: Don’t expect to see any evidence of a turnaround before it’s time to buy. The market always bottoms before the economy or earnings rebound.
Bear: That’s not a strategy, that’s just wishing. You can’t buy without evidence — and you certainly can’t buy because there’s no evidence!
Look forward to a volatile week while these issues and others get thrashed out in analyst reports and in the media. I still say we’re in a bear-market rally, one that potentially has another 5% to 6% on the NASDAQ still left in it before a really bad correction sets in. But we’ll know more after the end of this week. Last week was a big, heavy feast of new information. This week we digest it.
