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Location: Southbury, Ct, United States

Tuesday, October 25, 2005

October Swoon, End of Year rally?

Since October 1st, the market has been under fairly intense pressure. The leadership of the market has come down in price significantly. First the housing stocks broke down in August and September, followed by heavy distribution in energy. Although I am looking for the money to continue to move out of the energy patch into technology, biotechnology and healthcare, this does not seem to be happening. The energy Stocks are rallying significantly for the 2nd day in a row, and the fundamental backdrop does support this move. Earnings and guidance have been for most companies as a whole, with a few misses here and there. This sharp rally in energy gives many holders a second chance to take profits. I would take the opportunity, although I wouldn't exit the group completely. The fundamentals for the market are very good looking forward barring a complete derailment of the economy. This does not look to be the case. Any further significant weakness by the market would raise the question of whether the economy is on solid footing. The financial should start to rally here as they did in 1994, prior to the last 2 rate hikes by the Fed in that tightening cycle. Although I am looking for a rally into the end of the year, I am questioning whether the old leadership will reemerge, or new leadership will take hold. Either way, there is always a bull market somewhere, so there will be opportunities to make money.

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