The Thin Ice of Psychology

I just want to start off by reiterating my belief that this years New England Patriots are the scariest football team I have ever seen in 17 years of watching the NFL. On Friday I predicted a score of 34-13 (a 21 point gap) and the final today was 49-28 (a 21 point gap!). Offensively they cannot be reasonably contained, and while their defense has seemed a little less than impressive, you also tend to play a little softer when you are up over 21 points to move the clock. The Patriots have not played their best football as of yet, but November 4th versus the Indianapolis Colts is the game of the year. Home field advantage for the playoffs will likely hinge on that game. Also, a humiliating loss in last years AFC title game where the Patriots handed the game to the Colts will be motivation enough to play a strong game. I will of course have TONS more to say on that game closer to the match up. Sorry for the non financial commentary, but you have to be well rounded you know?

As I had posted last night, I fully expect the market to be in full bull mode on Monday and Tuesday, with the losses on Friday being fully erased on tech earnings and FED rate cut hopes. The problem will occur Wednesday when the Existing Home sales number comes out, and It will not fail to disappoint even low end estimates. New Home sales on Thursday also will be about as bad as possible. Those two numbers are going to have a significant impact on the market I think. For a while now, we have been assured that "the worst is over", and the wonderful "the market has all the bad news priced in". Throw in to that mix the mantra "the numbers can't get much lower" and the numbers on Wednesday and Thursday are going to whack that sentiment like those little moles that stick their heads up in that whack-a-mole game.

The psychology of the market right now in on nanometer thin ice. Oil over $90 dollars a barrel has caused a stir, and a nifty side effect has been a new realization of the dollar's weakness as a net Negative for the economy. I posted last night that PIMCO was supposedly joining the SIV Superfund, but today it seems they are going out of their way to say they are not joining. This directly contradicts what our pal Hanky Panky Paulson told the Italian banks at a G7 conference. That is a major development. When you want a bunch of people to come to your party, you tell anyone who will listen that all the major players are gonna be there. Seems like Hank over promised on PIMCO, and his credibility is now probably a question mark.

Slowly the bullish case has been eroding. Its a long slow process, and I think the current Economic Disconnect has some room to run. As seen on Friday, when market belief is shaken, moves down can be brutally fast. The volume on up days has been weak, and the volume on down days has been severe. That also says alot. Even the talking heads on the FOX business block today seemed tired and scared. They have toned down the raging bull arguments quite a bit.

In summary, I think we are very close to a major inflection point. The housing numbers this week are going to really put some pressure on the home price turnaround story. Who know which bank (banks?) are going to pop up and declare losses. Oil rising into triple digits is going to be a major issue. The attention being payed to the SIV Superfund is not helpful to any bull argument. All that said, I still think this week is an up week. But time is running out. The year end turnaround promised by the NAR, the homebuilders, the banks, the FED, etc is not coming. It is almost November, and even dumb people know nothing is going to get fixed in the one month of December.

As always, it sure is going to be interesting!

Have a good night.