To say that market participants are a bit confused right now is an understatement. On the negative side, the market is dealing with high oil, high natural gas, slowing consumer spending, economic disruption from Hurricane Katrina, potential negative earnings pre-announcements, a flattening yield curve, rising gold prices, low cash levels at mutual funds, the loss of the ‘Greenspan Put’, and a host of other issues.
On the positive side, the money being sent to the South could create an economic boom, inflationary wage pressures will lessen as Hurricane evacuees scatter through the country to fill jobs, the Fed could be done with rate increases, the leading economic indicators continue to point higher, merger activity continues unabated, private equity funds are very active and flush with cash, corporate earnings remain healthy, and trader’s frustration is rising even though the indexes remain near multi-year highs.
All these factors can be seen in the flag patterns on the major indexes which are signs of indecision. I wouldn’t be surprised by a couple of shakeout moves up or down before prices make a strong move in one direction. Right now, though, its difficult to tell which way the indexes will break.
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