Tuesday, July 31, Market Assessment

Dead Cat Bounce!

After the worst week in several years for the major averages, stocks bounced yesterday, just before the end of the month. But volume totals were significantly lighter than Friday's heavy levels. Even though breadth was positive, as advancers led decliners by a 5-to-3 ratio on the NYSE and by an 17-to-14 ratio on the Nasdaq exchange, the number of new 52-week lows continued to trump new 52-week highs on both major exchanges. It's hard to say that the downturn is over when the S&P500 is only off 5% from its all-time high. But we may see further buying today, since many fund managers will need to "dress up" their portfolios on the last day of the month.

I expect continued deterioration in the Financials, Brokers, Homebuilders and Energies. VLO reports this morning, which should be the last good news from the oil patch. Of course, I'm out on a limb on this forecast, but the growing consensus for an economic slow-down will translate into less energy demand pretty soon.

My portfolio is filled with puts right now; I don't see a reason to go long on anything just yet, and I'm only holding two equities, GOOG and VZ, since I'm about 75% in cash. But I admit that we may have some terrific buying opportunities in August, and I look forward to that day

Summary: Short term bearish; long term mildly bullish