Reality Bites

Good Morning. Reality is interfering with the global market rally. Arcelor Mittal and SAP both announced that business is not as robust as many had hoped. Both are cyclical companies that are tied to a recovery. Investors have ignored valuation in order to pile into a recovery trade, choosing to buy "recovery" stocks at 20+ times normalized earnings rather than "defensive" stocks at single digit multiples.

If we get an ugly day we should be set up for a turn of the month bounce. Were we not approaching month end, I would say that the market would have a couple of more days on the downside before a bounce, as we will not be maximum oversold until Monday. I don't expect we will see new highs on a bounce and I do believe we will see lower lows after the bounce is over.

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