>GREED AND FEAR (CLSA)

After Friday’s stock market action, the risk of the first real correction since the March bottom
has risen significantly. The S&P500 is now 1.0% below its 50-day exponential moving average
(EMA) while, from a Dow Theory perspective, the Dow Jones Transportation Average has turned weak of late (see Figure 1). It is also of note that the financial stocks, the leaders of the bounce since March, have begun to lead the market down

Fundamentally, it is also interesting that the American stock market has finally started to respond to disappointing consumption data. The culprit on Friday was September’s personal
spending report. Nominal personal consumption fell by 0.5% MoM and 0.3% YoY in September,
after a 1.4% MoM rise in August which was partly driven by the “cash for clunkers” (see Figure
3). This suggests that investors may no longer view such data as “lagging” as has been their
habit in recent months. Meanwhile, the hope for the bulls must be that the market is
sufficiently weak in the next few days for the Fed to remove all “exit” talk from the
communiqué to be released on Wednesday after this week’s FOMC meeting. The other hope
must be that the renewed stock market jitters prompts Congress to renew the First-Time Home
Buyer Tax Credit until April as is now being pushed by growing numbers of Congressmen.

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