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Our Markets are Still Manic! Be Cautious!

Stocks are set for an early rise this morning. I beleive it is in anticipation of the G-20 Summit & the agreement to cut deficits in half by 2013. A quick reaction, but where are we really headed?

Earnings want us bullish

Consensus numbers expect the market to be up  41% y/y earnings growth for this reporting season and for the earnings. This sounded high to me, but then I realized that we almost reached 3rd Quarter of 2007 earnings level last reporting season! There is a good chance we may see some nice surprises this earnings seasons. We will see if they can boost the markets.

Investor Intelligence Sentiment

What is this indicator? In short, the investor sentiment is most often neutral, but it can also be slightly to AAA
very bullish or bearish. By contrast, the most significant signals are given by stronger bullish or bearish rankings and by the less common occurrences of significant "event" readings. Investors Intelligence sentiment index has exhibited a high correlation with major events and the actual performance of the markets.After weeks of sliding, the Investors Intelligence sentiment staged a recovery with the bulls increasing from 37% to 41.1% and the bears down slightly from 32.6% to 31.1%. This isn’t the first ray of sunshine to fall on the II as it attempted a similar move higher a few weeks ago. But this recent move is the largest increase in bullishness since February 23rd, 2010 - the bull:bear ratio increased from 1.13 to 1.32. So bears are still prevalent, but bulls appear to be increasing.

But People are Also Concerned about a Shrinking Economy

·         Last week we experience bearish economic reports. Existing home sales plummeting, along with new home sales. Uncle Sam kept rates unchanged and talked softer to prepare us for a slowing economy ahead.

·         Durable goods were down but better than expected, (up minus transportation) while initial and continuing unemployment claims showed slight improvement.

·         GDP was revised downward Friday.  This was like throwing cold water on the recovery story while the University of Michigan Consumer Confidence gauge rose to its highest level in two years.

The ECRI, Economic Cycle Research Institute continues insisting on traders being cautious. It dropped its rates again to a 56 week low. Does this mean slow economic activity ahead?

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