today will be very interesting. I'm looking at a couple of patterns. Weak Fridays lead to weak Mondays, futures are up strongly, we'll see if the market holds the momentum through the morning. Almost all of stock market gains are in the November through April period. We are up strongly since the end of April, might be time for the summer doldrums. We are about to enter an election year though, a generally favorable stock season. Markets tend to bottom in October.
Thus, if the market quickly sells off, I expect a period of weakness until October, and an up year next year, albeit with a lot of volatility. This is, of course, purely for entertainment, I'm not betting the farm in the futures market that this scenario unfolds exactly as outlined. I do have some reserves in cash and near cash though, so if it happens, I won't be disappointed.
What could go wrong? Firstly, I'd lighten up on health care stocks, and I wouldn't have even one dollar in the pharmaceutical sector. These guys tend to get pummelled in election years.
Watch oil. It appears that we are pulling out of Iraq, one way or another prior to the election. Presumably it will not be a total withdrawal a la Viet Nam. The danger here is that Al Qaeda is perceived as having vanquished the U.S. and becomes a larger player than expected. Bin Laden's chief prize has always been Saudi Arabia. If Al Qaeda or some similar group gained control of Iraqi and Saudi oil fields, I have no idea where the U.S. has a reliable source. Most of the world's sources are controlled by anti-American despots. In time, we probably can live without foreing oil but in the short run, it would be ruinous. I can't see losing the oilfields as a likely event now, but things could change in a hurry, in which case $100 barrel oil would be cheap.
What if I'm wrong as happens frequently, the market bounces up strongly for the day. In that case, I'd expect the market may trek back to new highs. But trees don't grow to heaven, somewhere we should give back some of this year's gains.
