Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Back From Vacation

I spent last two weeks on a tropical island. Forgot almost everything about markets. Now returning to very disturbing picture. Despite today's rally, I don't feel good about stocks.

Technicals suck, to put it mildly. On September 21, pendant formation between 50-day and 13-day moving averages were broken down by both Nasdaq and S&P. This breakdown was confirmed on 22nd. I was in vacation mode already and abstained from any action. Last week, some relief. All three major indices broke over 13-day MA and stayed there. Today we had a huge rally. But still, indices are under 50-day MA, 13-day MA is below 50-day MA as well. Doesn't look good.

Sentiment is puzzling. Everybody is saying that sentiment is gloomy, but I hear a lot of rosy comments on TV. Maybe total sentiment is down, but TV sentiment is not. And TV senttiment is a better indicator for me, because it reflects mood of big institutional players. These players are the market, plain and simple. Sentiment is a contrarian indicator. For a sustained rally we need doom and gloom, better yet, deperation. I just don't see it.

Fundamentals. If you are watching situation in Europe, they are awful. But here we might get positive surprises. European leaders returned from vacations and they are starting to think that maybe something should be done. Maybe they will start acting. Maybe. Of course, earning season has begun. I have the impression that it might be better than expected. Thing is, despite crappy economy, big corporations increased profits last couple of years. Yes, we have "Tale of Two Cities" economy (Jim Cramer's term, I think). But stocks reflect profits of big companies. So we might get some improvement here.

Short term, markets might improve in the 4th quarter. Might. Long term, picture is really bad. I'm not sure yet, need to play with charts, but it looks like we are repeating performance of Great Depression, in somewhat less severe form. If we are at the same point as 1937 was, we have at least 3 years of flat or down markets ahead. And it worth reminding that Great Depression was ended by stimulus package commonly known as World War II. I hope we don't get anything like this, but without big stimulus we are in great danger of Japanisation of the world economy. I'm planning an article on this issue.

So far, my plan is to trade ranges and sit tight. As usual, plans can change on a dime.