Bulls vs. Bears

We have had several weeks where the market appears to be pausing with a slight bias to the down side. The market looks tired after its sharp move up from the bottom.

The Bulls say that this is a health restoring event, or consolidation period, and they would be fine with a 10% pullback. They also would argue that the lower prices could attract into the market those who sat on the sidelines during the rally.

The Bears argue that it was a rally that was underserved, that the sharp rise in prices was too fast because the economy is still far too weak to justify higher prices and that earnings are not going to rebound enough to support higher stock prices. They suggest that it was a short covering rally only.

So which side is correct? Everyone knows the widespread weakness in the economy. Will the huge amount of stimulus work? Will China’s growing economy help pull up world demand for goods? Will the banks continue to improve their balance sheets thus be willing to begin loaning again? Will interest rates stay low enough to keep the small housing recovery on track?

These are all good questions that are very difficult to answer. I believe the bulls have the edge in the argument, but just an edge not a conviction. Expect summer weakness. Expect a pullback and expect a rally. Of course the timing is going to be difficult.

Good Trading
Steve Peasley

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