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Optimism vs Pessimism

July 23, 2010 – 5:09 pm

A big 2% move for the stock indexes yesterday has returned them to their recent highs for the month of July. The reasons for the move are simple: a couple of strong European economic reports that belied the assumed weakness in Europe and a much better existing housing report here in the U.S. These reports must be put in context, of course. For instance the housing number showed sales falling 5% but the expectation was for a fall of 10%. That certainly does not seem like good news. The goods news was that prices were actually up 1%.

Obviously, traders and investors were overly pessimistic, at least before yesterday. However, more importantly, have we seen a turn in sentiment? Just a week ago consumer sentiment fell sharply, much more that expected. Is that going to be the bottom? With the oil leak capped and a permanent fix going in by next week, maybe, just maybe consumers will become a little more positive. The next jobs report will be very telling.

Corporate earnings being reported are very strong, but what we need now is improving economic statistics. To truly have a strong stock market the fear of a double dip recession needs to be a thing of the past. Reducing that fear might be more difficult since we are dealing with emotions and not facts.

The important question is are we going to fall into a double dip recession? A question that no one really has an answer to, but odds are that we won’t.

Good Trading
Steve Peasley

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