Tuesday, October 30, 2007

Markets are climbing the wall of worry.

Will the Fed stop after tomorrow? What happens if oil goes to $100? Can stocks go up in the face of the sub-prime problem? Merrill Lynch may have to take another $4 billion dollar write down in the fourth quarter due to losses because of sub-prime issues.

Wal-Mart has already cut the prices of their Christmas, I’m sorry, Holiday toys by 20% and it is not even Thanksgiving in fact we are three weeks away from Thanksgiving. The upscale department stores had a terrible September so how could anybody be positive.

I have found over my 35 years of investing in the markets that the markets rarely do what the consensus think they will do. Most people feel we are in a trading range somewhere between 12,750 and 14,200 on the Dow Jones Index. Until the economy gives us a clear direction, we are not going to break out of the trading range.

We could flirt with 14,500 maybe even 15,000 on the Dow but I think there is still way to much cash on the sidelines and the market needs to suck in more cash before it will punish people. The Fed cutting interest rates on a methodical basis will support the markets. Large interest rates cuts will spook the markets around the world.

Just as the Fed was slow and steady in increasing interest rates they will, I believe, be slow and steady in lowering interest rates. Once the markets have sucked in enough capital, they will go down. Be careful of the pundits who tell you the correction is over you having to get in or you will miss the market.

Therefore, will we get a Santa Clause, I am sorry again, Holiday rally? I think so. I do not expect it to be up 400 points in a day, just as I said that the Fed will be slow and steady so will the market climb to the end of the year. I expect some tax selling late in the year to knock it down a little and then a first of the year rally and then we have to be very careful.

Dan Perkins

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