STALEMATE

It seems we have reached a stalemate in the markets as of late. Today we closed at 1095.95 in the S&P. A month ago 11/10/09 we closed at 1096.42. In between we have been as high as 1118 and as low as 1085, a 33 point range or about 3%. Just eyeballing the charts, we haven't gone sideways for this long in years. The forces of good and evil seem well balanced at the moment.

The bulls see continuing economic improvement. Unemployment claims are falling, job losses diminishing, stronger car sales, improving home sales and stronger growth overseas. China's PMI up to a record 55.7 and India's GDP up 14.6%. In addition, the bulk of the stimulus package is still to be spent, oil prices are falling, zero interest rates, low inflation and mortgage refi's liquefying consumer balance sheets are supportive.

The bears are an august group not to be taken lightly, Mauldin, Roubini,Hussman,Grantham, Smithers, Comstock, Rosenberg, Pimco and Prechter.Who wants to bet against them. Some of their arguments are: The economic rebound is tepid and won't last. The markets are overvalued. That the market is pricing in a recovery to peak earnings and peak profit margins. Volume is weak. Credit availability not improving. How can consumers spend when their credit lines are being reduced. Commercial real estate problems still ahead of us. De leveraging, debt reduction takes a long time.

The ying and the yang. The rally started with 2nd derivative improvements, the less bad and moved to absolute improvements, like the PMI's moving above 50. Companies made their numbers through tremendous cost cutting. They seem to indicate that they can hit their numbers going forward with the current level of demand. In that sense they are better off than main street who can't fire themselves to cut costs. But then we have Dubai and Greece. So which way do we break?

The news has been mixed lately. The non-manufacturing PMI was a disappointment, so were chain store sales, but payrolls were a great surprise.
That's why we are at a stalemate. The first leg of the bounce is over and the ride gets more bumpy from here. The numbers haven't and won't show clear uninterrupted trends.We won't have a V shaped recovery nor fall back into recession. Companies have adjusted to the current level of economic activity as well as the 80% of the working population that has jobs. Perhaps what the market is in for is a period like 2004 where the S&P traded between 1060 and 1160 from January to mid November. Most of the time it was between 1080 and 1140. That makes this months 30pts look huge. In other words, without a crises, we just muddle along.