A Thought On The Recent Market Action.

Battle lines are being drawn in this market. The first part of the week was won by the Bears as the market had a wicked sell off that actually started the week before and did a certain amount of technical damage to many stocks and ETFs. The Bulls won out on Thursday as euphoria reigned with better than expected GDP numbers being reported. Friday saw doubt creep back in.
Neither the Bulls or Bears seem to have much of an edge right now and all we continue to do is basically correct by time instead of by price. The bulls say the summer rally will continue after a brief pause. Many in this camp argue that the end of the year factors are too great to ignore right now. They also say that we might correct a bit but all of the cash on the sidelines means we are likely to move back up again. Many Bulls point to the period after Thanksgiving and towards the beginning of next year as the likely time frame for that year end move.
The Bears say not so fast. They argue that we've come to far too soon. They think the technical damage is more significant than the Bulls are willing to admit and that it won't be so easily repaired. As of this writing (midday Friday) the Bears are winning that argument. They think this rally is going to fail and that a more significant correction is in the offing.
For our accounts we have chronicled for weeks that the market is overbought. For example See here: http://lumencapital.blogspot.com/2009/10/tsionna-102709.html & here:

http://lumencapital.blogspot.com/2009/10/tsionna-market-update.html for our latest thoughts on this. We have started to work that off but many charts have seen more money flow erosion these past couple of weeks than at any time since early in the summer. We have in certain accounts sold a few positions to raise a bit more cash. We have done this in certain risk oriented accounts where we have at least some mandate for a shorter term orientation. We have also marked other investments for sale across a greater spectrum of our client base should this decline turn into something more than what we've seen since early this summer. Very few of the major indices look attractive for purchase by our metrics as of this time. However, there are some sectors that are starting to become oversold and we are doing some extra work on these to see if they merit investing money in them now.

Markets are starting to focus on the FOMC interest rate announcement next Wednesday. The possibility has been raised about the "Fed" changing its language regarding interest rates in light of this past week's 3rd Quarter GDP announcement. I think the Fed is going to leave interest rates alone for a very long time but its what the market thinks that's the most important factor. By that time next week we could be oversold in the short run and be in a better position to access where we might be going into the year end.