My Equity Scenario for the Rest of 2010

Not a day goes by when I don’t fall down on my knees and thank the heavens that I avoided equities for much of this year (click here for “I’d Rather Get a Poke in the Eye With a Sharp Stick Than Buy Equities” in January at Trading in American stocks this week is a sloppy, low volume, conviction free affair. Good thing I focused on the grains, the Canadian and Australian dollars, emerging market equities and debt, junk bonds, precious metals, rare earths, and a few special situations like BIDU, POT, AGU, FCX, BP, RIG, and MOS.

I am hoping for a final flush this month which would breaks the 1000 support which has held for 3 ½ months and takes us down to my long standing 950 target for the S&P 500 (click here for “Why There is No Place to Hide in This Sell Off” at ). Gold’s positively virile action recently, where it touched $1,260, just shy of an all time high, tells you that September may not be a pretty picture.

Historically, stock markets are weak for the six months going into midterm elections. The April 25 top on the SPX neatly fits that time table. In every election since 1950, markets then rallied for six months after the midterms, setting up for a nice yearend rally.

The catalyst for the move will be the removal of the elections themselves as an unknown. With the two political parties at contemptible, diametrical, even hateful  extremes, elections these days have a much larger impact on financial markets than they have in the past.

End September will also bring the next round of earnings reports, which should be pretty good. After all, firing people to boost productivity and profitability is the winning business model of 2010. A 950 SPX gives you a PE multiple of 10, the lowest it has been for years. For you technicians out there, 950 also happens to be a key Fibonacci level.

Mind you, we aren’t re-entering a new bull market. I still believe that we will remain mired in the broad trading range in US stock for years that a GDP growth rate of 2% justifies. There are far tastier fish to fry abroad, like in Chile (ECH) (click here for “Chile is Looking Hot” at ), Thailand (TF) (click here for “Where to Buy on the Dip” at ), Indonesia (IDX) (click here for “Keep Indonesia on Your Radar” at ), and Poland (EPOL) (click here ).

I have often said that markets will do whatever they have to do to screw the most people. Getting as many as possible maximum short in September, then running the markets up for the rest of the year, fits the bill nicely.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.