Nightmare on Wall Street
by Jeff Clark
September 12, 2006
Every horror movie has the same scene…
The babysitter hears a noise in the attic. She slowly walks upstairs to investigate the sound. She reaches for the light switch but it doesn’t work.
“Is anybody there?” she calls out, but there’s no response.
She hears another noise coming from behind a stack of old boxes in the corner of the room. She inches forward to peer behind the boxes. And then…
A furry little kitten jumps out from behind.
The camera zooms in to a close up of the relieved babysitter holding the cuddly little feline in her arms. “You’re not so frightening.” She says to the kitten.
Of course you know what’s coming next…
As the babysitter turns to go back downstairs the slasher jumps out from behind the boxes and… well, you know the rest.
Right now on Wall Street investors are holding the furry little kitten in their arms.
The scary rumblings we were so afraid of as the correction started in May are all but forgotten. And, like the babysitter who starts making her way back downstairs, investors are convinced that there’s nothing to fear.
But be careful. Earnings season is about to jump out from behind the boxes and… well, you know the rest.
We all know that September is historically a bad month for stock prices. What we don’t know is WHY it’s such a bad month. I suspect it has something to do with the traditional summer rally lulling investors into a sense of complacency. But it probably has more to do with the third quarter earnings pre-announcement season.
In just three weeks, companies will close the books on the third quarter. So we’re shortly going to start hearing from companies that may fall short of analysts’ earnings expectations.
Given the increased interest rates, the relatively high oil prices throughout the quarter, and the recently reported spike in labor costs, we may hear a few more pre-announcements than usual.
At the very least, investors are likely to be a little more on edge about the upcoming earnings announcements. That edginess could prove to be the catalyst for another decline down to the 1,240 level on the S&P 500.
That’s my new downside target and I expect a decline to get started any day.
Best Regards & Good Trading,
Jeff Clark
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