"The Age of Aquarius"? 10-7-05

Good Morning.

Overseas stocks were weak largely in sympathy with the U.S. Markets yet again. Non-Farm Payrolls were released this morning, surprisingly stronger than expected. In addition, prior revisions showed further increase in jobs added. Importantly, the prices paid component was less than expected at 0.2 versus 0.3. Despite the fact that the full effects of Katrina have not yet been factored into this report, there is no doubt that the U.S. Economy was showing stronger underlying growth than expected prior to the storm. This certainly provides a stronger safety net for when the final impact of Katrina ripples through the economy.

This is quite important due to the fact that downward momentum in the real economy now has less of a chance to be sparked. Remember, most economic downturns are no different than a stock market decline which feeds on itself with negative momentum that gets out of control. Prohibiting the "ignition" of downward momentum can go a long way for long-term economic stability. Therefore economists will be relieved to see the prior robust nature of the economy before Katrina.

The stock market over the last few months seemed to relish bad news. Perhaps the low volatility in the markets have been so burdensome for traders over the years that any opportunity for short term gyrations was welcomed. Nonetheless, the market finally succumbed to inflation talking Fed Heads. Jaw-boning from the Fed is usually too much for even the most steadfast Bulls.

The stock market needs to stabilize around these levels. If the Bulls can manage to accomplish that over the next two weeks, a tremendous opportunity exists for the badly Beaten Bulls over the last five years. The NASDAQ is likely to chop around the 2069 and 2120 levels. At least a couple of tests of NASDAQ 2169 are in order. Should the market form a base within this range with improving internals, the stage will be set for a major rally.

Corporate fundamentals, combined with an opportunistic macro environment, seasonality, and an extremely attractively setup stock market have allowed the moons to align for such an event. Mind you, the moons have aligned before only to collide. Therefore, we need to check stubbornness at the door and be prepared to bail if our thesis is proving wrong. The difference this time in our trading risk management versus the past few months is that we will allow slightly looser stops.

Stay alert.

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