Stocks Take a Breather, and Pondering the Future

The title of this post says pretty much all I have to say about the market action the last couple of days. There isn’t a lot going on at this point, but as we predicted at the beginning of the week, we’re getting our little pullback from an over-extended stock market, and volume is contracting. So far so good.

Since there is so little to say about current trends, I want to mention a theme that I have been considering for further out. There appears to be a fair probability of a significant political turn at the mid-term elections in November, and we will see a Congress more attuned to fiscal restraint and pro-business policies. I think this will be a bullish event for

1. Stocks in general

2. The US Dollar

What to look for: the market, as always, will begin to discount this ahead of the fact. Be on the lookout for an autumn rally as early as September, but remember that October can often be volatile. If price and volume action begin trending as we suspect, it will show up in the charts. There could be a significant opportunity to put idle cash to work and capture some nice upside moves in risk assets.

Side Note: catching a segment of yesterday’s Kudlow program on CNBC (yes, he’s a braying jackass, but he’s not always wrong), Larry listed the current reasons for his customary and predictable bullishness. Among these was that the eurozone crisis has turned out to be a non-event. While you certainly could have gained from the smart recovery in the euro and European stocks this summer, I don’t buy that macro theme for a minute.

There is going to be much more to this story before all is said and done, and quite a lot of it is not going to be bullish. I continue to avoid eurozone assets. Being long that stuff is like dancing in a minefield. There are less dangerous ways to make money in the markets.

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