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A Wall of Worry

August 9, 2010 – 4:57 pm

This morning the market is fairly flat after Friday’s intraday weakness and then an end of the day recovery caused by a poor jobs report. The market actually rose last week by over 1% while earnings continued to surprise and economic news continued to disappoint.

This week the most interesting statistic will be out on Friday when we get the retail sales numbers for July. The expectation is for it to be up .5% after falling .5% for June. The market is going to start to look for signs that the soft patch in our economy is in the review mirror instead of weakness in the economy in the windshield. If fear of the double dip fades and the economy starts to look better the market will sustain its small upward movement from July’s low. If not we will have another correction before year end.

As we said at the weekend conference it appears that we are experiencing a normal yearly cycle where the summer has a pullback and then a rally. If the cycle holds we will get a strong rally near year end. Overall the earnings have been so strong that the market is inexpensive in historical terms. There is a lot of fear in the market and a sustainable rally is one that crawls up a wall of worry. We certainly have the fear now we need the upward crawl.

Good Trading
Steve Peasley

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