Technical Correction? Not Yet

Charts: The S&P 500 closed at 990, up 1%. Since a technical correction ensues with the broad index crashing through 869 with secondary indicators also crashing, and that has happened yet, we are still in a technical rally. Resistance is now at 992. It is good that resistance held and range bound consolidation is still possible. A big move in either direction is bearish.

Fundamentals: Manufacturing worldwide continues to show strength despite the overall weak fundamental picture. Regional indexes in America like Empire State keep improving. Germany is a proxy for global manufacturing and m/m investor confidence improved from 39.5 to 56.1 (startling). The numbers out of disciplined Germany are the cause for today’s rally just as the numbers out of spendthrift Japan caused yesterday’s crash. The strongest economies have the lowest government debt and are leading the fledgling recovery. For instance, Singapore had the highest Q2 GDP on the planet and a very low fiscal deficit. When and if the global deficit spending ceases, then the global economy may crash and burn. It may all end in mascara-smearing tears. But if the governmental credit cards aren’t cut up soon the resulting debt tsunami will cause a depression so bad nobody will be able to afford mascara. On that score we have Team Obama’s budget-busting healthcare package floundering (bullish). The President says that he is resolutely for a public option but he is also flexibly willing to jettison the public option. Hopefully, this doubletalk will piss off voters even more.

Geopolitics: The Saudi government said that it is increasingly concerned about the situation in Yemen. This is a subtle hint that it may be directly helping Yemen militarily and perhaps the reports that the mighty Saudi Air Force is clobbering the bad guys are true. Yemen itself says that the northern rebels are linked to Iran and that the ground offensive is halted for now. If the rebels are directly linked to Iran, then the Iranian report about the Saudi Air Force could be true; hey, they ought to know.
In Iraq, the top US general says that American troops will probably be moved into the restive Kurdish region and restart offensive operations if the Iraqi government gives the green-light. While we may personally wish and hope for magical peace in Iraq it is bullish for global stock markets if America resumes fighting there. In Afghanistan, suicide bombs continue to kill good guys and civilians at a torrid pace. NATO won’t give a body count but today at least 6 good guys died. NATO says that on election day this Thursday it will suspend all offensive operations and focus on protecting voters. The Taliban says that it will savagely attack voters and after the election there will be a campaign to cut off the ink stained fingers that mark those who voted. In a speech about Afghanistan the President said, “This is not only a war worth fighting. This is a fundamental defense of our people.” As badly as the President sucks at economic policy he rocks at foreign policy.

Specific Stocks: I’ve been buying Harris Corporation (HRS) on dips (see 8/14/09 newsletter). The Army’s extravagant Future Soldier science fiction fantasy has been scaled back to more modest gear emphasizing integrated communication—the exact spot occupied by HRS. Also, I like its civilian communication business.