The 2 month long winning streak in the indices was decisively broken last week, and I had to comment. This current sell-off is the first real test for the bulls. The brutal sell-off in tech, especially in the more speculative names that were running up 50%, doubling, and tripling, is all too predictable, especially at a time that the market now chooses to only see the negatives out there. I think this sell-off is buyable for the traders and should profit them into the end of the year at least. The only kink in that scenario is if we get some truly blockbuster earning warnings this month, but typically, companies do not like to spoil Christmas and try to hold the really bad news, if there is any, for the New Year.

I do want to make sure to note what could be a classic "blow-off" top in the markets. This happens when a high-volume buying day leads to a high that is quickly sold back down in a sharp, decisive move and counter-move. For those of you following the market, stocks rallied sharply the first morning after the T-day holiday on drunken giddiness over supposedly strong retail numbers only to be sold back down hard that same day (ironically many retailers followed with bad news for the month of November and sober outlooks for Christmas, and even those that had some good news, couldn't get back on the party-track). I wanted to point out the blow-off back when it happened, but I decided to wait and see since I had already sent enough missives at that time! The market has largely been in sell mode ever since. From my vantage point, the market has decisively signalled where the intermediate top of the market is. We should see a rally from this current sell-off that re-tests that high, heck, we may get several teases, but the script is now being written for the ultimate re-test, and likely failure, of the October lows by next Spring. If THAT happens, I will begin to turn from bearish to bullish as I suspect a harsh low in 2003 could finally be the mystical low everyone so sorely seeks.

As far as Iraq, I think the market is tired of worrying about Iraq. It will take a big news story coming out of there to truly have a lasting impact on the market, positive or negative. As far as the terrorism threat, you can tell the market is not too worried because you get nary a peep from the traders when some big tragedy happens overseas. As far as the economy, the market gets worried and then gets wildly optimistic from one moment to the next. This indecisiveness and tentativeness is a classic sign that there is no big raging comeback around the corner for the economy. In fact, I think too much attention has been focused on whether or not we are avoiding a double-dip recession. We should be more focused on whether the expectations for a robust recovery are justified. As you know, I do not expect anything close to a robust recovery. In fact, I would not be surprised if the Fed is forced to continue reducing interest rates sometime next year. I am still on the fence as to whether we re-enter recession, or worse. Certainly Bush has finally begun to get worried. On the track we are on, the economy will remain an issue when he tries to run for re-election in 2004 - and we all know what happened to Daddy Bush when the economy was weak and Iraq was the obsession! Bush's swift move to re-tool his economic team speaks volumes. That rising unemployment rate (now at 6%) is starting to whisper and taunt poor Bushie....

In summary, if I am correct, we are right now witnessing the first footprints of the big trading range that I have often spoken about. For the next few years, maybe more, I am now guessing (it will be less of a guess by next summer) that the top of the market will be around here and the bottom will be about where we were in early October or much lower. But if you are willing to go with the flow, a definitive trading range sure is better than the persistent decline we have suffered for almost three years now! As you follow this trading range, try to ignore most explanations of why the market is up one day and down the next and keep your eye on the intermediate and longer-term trends. Even now you can see the eerie symmetry of the stretch to explain the market's manic mood swings: "Stocks down on worries about the economy and Iraq" "Tech down on downgrades" and then wake up the next morning to "Stocks up on hopes for the economy" "Tech up despite downgrades as investors hope worst is behind them." Sprinkle in the appropriate economic numbers of the day, and you can explain almost anything you want positively or negatively.

Be careful out there!