Bedtime for Bulls?

The last few weeks of trading have been horrendous for long positions...and rightfully so, investors are scared. But the type of investor in today's marketplace has changed significantly in the past 20 years. Average investor, you and I, are no longer a well to do white male with a couple of hundred thousand dollars to play around with. This change has affected the way the market reacts to news

Everyone is an investor now. With the advent of online trading, you don't need long sit downs with financial advisors requiring $50,000 to open an account. Believe it or not, small investors have a lot more at stake than the big boys, hence the huge reaction to bad news and the small reaction to good economic news.

When the war began, average investor heard of the great news from Iraq. Shock and awe, the fastest mobilization through a nation since General Patton's march through Europe, little resistance, Iraqi's dancing in the streets and so on. Although our economy was flat, investors saw a bright future and put their money in the market. Now investors are realizing the war is not a piece of cake but it is in fact a war and are pulling money out. But is this wise?

Analysts believe our economy is getting stronger by the day. Logically speaking, a stronger economy will lead to better corporate earnings and higher share price. We are seeing better corporate earnings but lower share price. So what gives? Many blame the coming interest rate hike but we at Powerhouse Weekly feel geopolitical news is driving the market down and not future borrowing costs. Big money has already moved the market to revalue for increased rates, yet the market continues tradin g down. Its fear that's causing the tumble and this over reaction will trigger the comeback.

The global economy is expanding and corporate earnings are growing. The earnings season which is coming to an end is a prime example of how investors are selling on immediate fears and ignoring present and future earnings. A majority of corporate earnings beat estimates, yet in many cases share value dropped.

With the world economy steaming ahead it's almost foolish to be bearish on stocks. But, with the market being driven by short term fears it's wise to sit on the sidelines for a while. We're at a point where big moves up in equities will only come when either big money grabs bargains with huge volume or investors' fears are settled. One, or both will happen this year and the market will move up...But when?

We think the market will trade sideways at least through the summer. It's not only the news from Iraq that is affecting the market but also the coming election. Uncertainty about who will lead the nation is weighing heavy on the market. With the race seemingly neck and neck, the market has no assurance of future leadership. Unless a candidate pulls way out ahead, the uncertainty factor will continue to cause flatness through November.

What it has come down to is this: news vs. economics. News is currently beating economics at the market, hence the drift downward. The presidential race will likely be close all the way to November so flatness will be king here. The news will get better, especially when politics are removed. The bulls are taking a nap for sure, but we think bears are in for a long hibernation. The bull market is not over, its just resting.