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September 2, 2005


It's fascinating to peruse the ruminations of financial journalists, most of whom are shooting in the dark. These are people who grudgingly follow the markets at "work" and then go home and think of other things, unlike we traders who have the markets on our mind all the time because we like it.

Over the summer, I read countless allusions to the possibility (hope) that the equity rally would extend itself when and if oil prices fall. The intermediate trend tell a different story. During oil's great summer run, the markets pulled off one of the greatest bear squeezes ever. Now oil appears to be peaking (see my last post), and I think the aforementioned journalists will be greatly disappointed to observe the resumption of the bear market as oil prices fall. Even today, the front month for crude oil shed nearly 3%, and we saw a weak day on the market.

Another correlation that is breaking some hearts is the now failed link between the 10-year Treasury yield and housing stocks. Drops in the 10-year note's yield used to send home bulls into the streets, dancing. Over the passed month, the 10-yield has fallen about 40 basis pointsÂ… a huge drop. Over that time, housing stocks have reeled more than 10%. The break of this correlation is very likely to be a strong signal that the gig really is up this time.

Well, summer vacations are over. The kids are back in school and people are turning more of their attention back to the markets. September and October should prove to be memorable.

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