Stock Markets Tunnel Vision

This stock market is now treating every gust of wind like the Apocalypse. It feels as if even a sneeze could drop the NASDAQ 5 points. While it's true that the Oil infrastructure in the Gulf is susceptible to more disruption, market participants are choosing to only focus on the supply component of the equation. Clearly overall demand is waning, due to the recently high energy prices. Traders are nervous, and are choosing to focus on the glass being half empty.

By the way, if you haven't heard, North Korea has pledged to end its Nuclear Weapons Program. Media! Where are you on this story? This news would have been good for a 1% to 2% upside spike in the stock market only several weeks ago. Nowadays the media is only focusing on the weather in the Gulf. In addition, the blatantly cooling secondary home housing market, which has longed sucked speculative investments away from the stock market, is not even making the headlines. It's amazing how priorities change week by week.

When Hurricane Rita passes or veers in a different direction, along with a pause or new language by the Fed, traders may have a delayed reaction to the positive Macro news currently being ignored. Keep in mind, we are not forecasting a sustainable rally however, the upside countertrend rally that started Friday probably has more room to run. Therefore, we are slowly scaling into select long positions: Texas Instruments (TXN), Autodesk (ADSK), Merrill Lynch Semiconductor Holders (SMH), NASDAQ 100 Trust (QQQQ), Lucent (LU), Comverse Technologies (CMVT), Motorola (MOT), and Ingram Micro (IM).

We have to admit our surprise by the degree of the negative reaction in the stock market to this new hurricane, Rita. However, the Bullish arguments listed above are likely to emerge over the next day or two. Our large cash position has been reduced to now approximately 40%. This should still give ample protection if we are wrong about the continuation of the upside countertrend rally.

We continue to believe this dip is tradable for a day or two.

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