Alan Abelson's column in Barron's nails something important about this past week's big bounce in stocks - he's basically saying that all the fundamental and technical analysis you want can't even touch the power of a mightily wrong estimate in terms of moving the markets. To wit, we did not have a "good" August jobs number, but we did have a number that was much better than the consensus punk estimates - and that was all we needed for some up-field progression.
The trouble with relying on rallies from whack expectations is that the expectations don't remain so whack for so long. The ranges also tend to narrow as well; better to be a typically wrong analyst in broad company than attempt to be an infrequently correct outlier.
If the better-than-expected game is going to get harder to play for those looking to get more constructive on stocks heading into the fall, then where will the strength needed come from? Ask any NFL coach, they'll tell you that true leadership can only come from the locker room.
Stocks need strength in other stocks at this junction. In my view, after last week's reprieve from the recent and relentless out-of-stocks-into-bonds trade, we're going to need a better foundation to work higher. Leadership must emerge from the ranks, not from the economic data or our weakness in forecasting it. A lackluster number from the PMI or the BLS that just happens to be not quite as lackluster as what was expected is not going to do the trick going forward.
Better-than-expected on the economic front has given us a reason to stop selling stocks, but stocks themselves need to give us a reason to come in and buy them if we're to finish the year nicely. And no, the quarterback Apple Inc ($AAPL) can't do it all alone. We're going to need the oil services and drilling complex to pick itself up off the field along with some spunk out of the large cap banks.
In the meanwhile, a few more shock merger announcements or rumors (Burger King, Potash, Genzyme, Dollar General, MacAfee) should keep the short-sellers off the blitz. This may buy us time for that stock leadership to make itself known amidst the cacophony.
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