an tSionna {11.01.11} First Of The Month

Lot's of moving parts yesterday in the market.  MF Global's filing for bankruptcy and further squawking out of Europe combined to make for a bad day and close out on a sour note what had turned into a pretty good month.  While all of that played a part, we will go back to some of what we said yesterday {see directly below this post}. First you can see in the chart above that by our indicators, we'd become extremely overbought since the market began this rally.  The other thing is that you can see the S&P 500 {as shown through its ETF proxy the SPY} had recently penetrated through its 200 day moving average to the upside.  It is likely that we are going to at least make some attempt to test that moving average as a resistance level at some point soon.  

Indicators are now pointing to a market that is likely going to muddle along for awhile.  We likely need to digest the move we had in October which shot the averages up something like 11% and have moved them within shouting distance of their break even points for 2011.  November along with December tends to be a pretty good month for stocks. It is likely that year end pressures may come into play more this year than in others.  CNBC reported yesterday afternoon that on average hedge funds are down 8% versus the market.  If that is true than the prospect of their general partners getting paid out of the profits is becoming more remote as the year runs out of days.  Look for them to try to step up in here on weakness and push stocks higher in the last two months.

Corporate earnings have come in pretty much better than expectations this earnings season and that should support stocks on the fundamental side unless we begin to see more evidence of economic deterioration.  Certainly there is nothing to move us away from our belief that stocks can trade between 1250-1300  on the S&P 500 by year's end. That is the potential for a 6% move to the upside from here if stocks move to the high end of our range by December 31st.  

Look, there are things that could still go wrong.  Europe remains a mess and this MF Global news may have some short term strings.  I'd note that's why we have the playbook and game plan to refer to if things go sour.  But ultimately economic news should trump all the rest and so far that news has been positive.  This gives us a belief that we could still move higher.  It may get a bit rocky over the next few weeks, particularly as stocks digest some of these gains and as European headlines move stocks.  But given what we know today, stocks look more likely than not to head higher as we roll into the new year.

*Long ETFs related to the S&P 500 in client and personal accounts.

**Please note that the above reflects solely the opinions of Lumen Capital Management, LLC. As such it is designed solely for the clients and friends of our firm. Since we do not know the investment parameters of casual readers of this blog, they are advised to consult their own investment adviser's or do their own homework. Nothing in this posting should be construed as a recommendation or a guarantee of any sort. Better yet, hire us and we'll show you how our work is done!!!