Stock Market -- Technical & Psychology

S&P 500: 1267

As discussed in prior posts, I thought we would be turning a new
page for the market as breadth and momentum compression was so
intense in recent months. In the 4/13 post I opined a signicant move
was in order come May. My strong hunch was that it would be to the
downside. The sharp breakdown of the market since May 9, leaves it clearly
oversold, but also in a no man's land. To reward the bears valiant
battle since Jan. '06, which produced such tight compression, the
market should move down at least another 5%, leaving the SP500
lower at around 1200.

I was concerned we could get a spring time correction not only
for seasonal reasons but also because the powerful + 35 - 50%
moves of the small and mid cap groups over the past year was an
insouciant advance to high levels of valuation in an evironment
of rising risk. These stocks are correcting, but it does not seem
like justice has quite been done yet.

I am cautious about making any predictions in here, because I do not
know if I have much of a handle on market psychology. I do not have
a bearish macroview as many have expressed so suddenly. I just thought
many stocks were too extended and needed a good hit and that May
was a dandy month for it on a seasonal basis.

The economy is entering a transition period to lower growth and, I
trust, more moderate inflation. With these sorts of fine tuned
scenarios, the markets can be very jittery if the ball does not
stay right in the middle of the fairway as it rolls to the cup.

I would like to see the market lower, especially the small and midcaps,
but I do not not want to miss a positive swing in psychology should
one be shaping up quickly. So I may follow the trend for a few weeks
until I have a better handle on the market's intentions.