Ghouls May Celebrate Halloween Mid-Week 10-31-05

Good Afternoon.

The stock market is showing nice follow through from Friday's Bullish turnaround. Even the overseas markets got into the action racking up some nice gains with the French CAC +2.3%, German DAX +2.1%, and the Japanese Nikkei +1.8%...NICE RACK!!

Today is the end of the month which is most likely providing a little "window dressing type" upside pressure. Mix in a little performance anxiety from the underinvested Bulls who were shaken out last week and voila NASDAQ +1.3% as we write. The key question is whether or not the negative news flow and overall gloom is thick enough to sustain this move. Certainly, investor intelligence sentiment polls are showing a large increase in Bears as well as a decent drop in Bulls. Despite our intermediate and long-term Bullish outlook we are a little skeptical that it is clear sailing for the very short-term. Mind you, we are not recommending putting on Bearish trades or decreasing exposure, rather simply calling to your attention some short-term fireworks to the downside are still very possible.

The window of opportunities for the Bulls is enormous, especially if we can raise the level of despair one more notch. What would really be ghoulish would be for this particular rally to peak shortly after tomorrow's Fed meeting announcement. Having this market labeled as another failed attempt by the Bulls would push the gloom to extreme levels that historically have always led to sustainable rallies. Combining this with bubbling end of year performance anxiety would simply set up an explosive rally opportunity for the Bulls.

Regular readers already know our fundamental view that is underlying for our Bullish case. This particular post is only discussing the effects when extreme sentiment is overlaid on those fundamentals. When everybody is finally convinced that there is not enough time left in the year for the market to turn in positive performance that is when it will take off like a Maserati.

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