Correction?

We think that the correction is already over. Investors assume this is a buy opportunity and will act accordingly.
Life can be beautiful while the smell of bears grilled by this move is everywhere around.
This said.
The shake out was heavy in the financial sector. That section of the S&P500 tanked with more than 5% in 2 days. Is there more to come?
Possible. But not sure.

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Some caution...

It’s correction time. Still light, but stocks are retreating from the rally they enjoyed in this second quarter. The number of shares going lowers is exceeding the number of shares going higher as measured by the McClellan indicators.
We illustrate this by the summation index of the NASDAQ.

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Expiration week

It is an expiration week. The fan club of the Max Pain theory (where pro’s try to let expire as many puts and call worthless) will be delighted to know that the inflection point for most indices in order to obtain this result is lower.
Will this result in a down week?

In the mean time we read a report from Ned Davis Research handling the question if stocks are cheap.
We report

“Ned Davis Research looked at market valuations after bear markets since 1929. The firm found that in the first three months after bear markets, the market’s P/E tends to climb by about 10 percent. And the multiple has traditionally expanded 22 percent in the first six months after a major market downturn.

But since March 9, when the recent rally began, the P/E of the S.& P. 500 has jumped nearly 40 percent. Such a surge in P/E ratios may be warranted if the recession ends soon and profits recover quickly. While there are some signs that the worst of the recession may be behind us, few analysts expect profits to stage a major rebound. And, of course, it’s still unclear whether the recession and the bear market have ended.”

What’s the problem here? Earnings.
Nobody has a clue what earnings will be for this quarter and the remaining of 2009.

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