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The bulls and bears fought to a standoff on Friday and next week could be a significant turning point in the course of the markets this year.  Bull or bear is "a coin toss" because this market feels much more like a gamble than a stable platform upon which to make investing and trading decisions.

Here are the current cross currents and arguments for each side:

Bulls:

Fundamentals:

* Continued "better than expected" economic reports

* FedEx, a bellwether transportation company upped its guidance on Friday

* Consumer confidence came in higher than expected on Friday and highest since June

Technicals:

*Major indexes broke out to new yearly highs last week

* 91 % of all stocks above 200 Day Moving Average

* 87% of all stocks above 50 Day Moving Average

Bears:

Fundamentals:

* Fed Beige Book reports sluggish spending, downward pressure on home prices, weak labor markets, weak loan demand and tight credit

* Highest unemployment since Great Depression

* Recent weeks money supply in decline

* Corporate revenue in decline, earnings up only due to cost cutting

* P/E Ratios well above historical highs

* Best Buy downgraded on Friday by Oppenheimer from "outperform" to "perform."

* Wall Street Journal reports that median household income fell -3.6% last year, steepest drop in 40 years, poverty rate highest since 1997, and 2008 median income, adjusted for inflation, lowest since 1997.

* Wall Street Journal reports Chinese Premier in speech at World Economic Forum that "the pickup in China's economy remains unstable, unconsolidated and imbalanced."

Technicals:

* S&P 500 unable to breach 1044 significant resistance

*  All major markets extremely overbought and indicating short term correction likely ahead.

*  XRT, SPDR Retail ETF declines -1.2% on Friday inspite of positive consumer confidence report.

So next week will be key as some significant economic reports are due on Tuesday with August Retail Sales and Wednesday with Industrial Production, Building Permits and Housing Starts.

A break higher from here would indicate that this rally has further to run while consolidation and downward pressure would indicate that demand has dried up.

Next significant upside targets would be 1100 or approximately 6% from here on the S&P 500.  Initial downside target would be 995-1000.

My signals remain mixed.  Most sectors are on P&F buy signals while most are overbought and major index short term oscillators point to a correction ahead. 

The View from 35,000 Feet

The Harvard Endowment reported a year over year loss ending June 30th of -27% which is signigicant because this investment organization has long been hailed as beinig the best and the brightest and even they have been unable to sidestep the carnage of this bear market.

Tuesday marks the one year anniversary of the Lehman Brothers collapse which touched off the financial firestorm and led to a -46% decline on the S&P 500 in 6 months to the March, 2009, lows and leaves the index -17% below its level one year ago.

Friday marked the 8th anniversary of the 9/11 terrorist attacks and the Dow closed Friday at 9605 which is uncanny becaust that's exactly its level on 9/11; so in eight years, this major index is flat while the S&P which is still trading below its 9/11 levels.

Sector Spotlight

Leaders: Real Estate, Oil and Gas Exploration, Energy 

 
Laggards: Bullish Dollar, Utilities, Mexican Peso

My young son started his Junior Year in  high school this week and we're all off on the quick run from Labor Day to Christmas.  We're soaking up the last warm days of autumn with dinners on the deck looking out at Mt. Bachelor and some autumn fly fishing.  Winter comes early in the mountains and seems all too close.

On the market front, the days ahead promise to be fast paced and exciting, as well.

 To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

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