The BullBear Market Report for Friday, May 15, 2009

The BullBear Market Report, a twice weekly after the bell live internet radio call-in program, hosted its inaugural show today. There was a wide ranging and vigorous discussion of current market conditions and the long term fundamental environment. You can listen to the archive here using the embedded player or at TalkShoe.

The BullBear Market Report gives traders and investors a venue for discussing and sharing market views and techniques.

Our first caller was Jim from Nevada whose views were somewhat more bearishly inclined than my own. This divergence made for a fruitful exchange that will benefit any market participants.

I'm flat the market as of today and am anticipating a period of trading within a range potentially bounded by SPX 950 on the upside and SPX 850 on the downside. As I indicated in my recent Market Report, we will have a period of lateral movement until the relationship between the 50 and 200 EMA's resolves itself. I would expect this process to take anywhere between 6-12 weeks. If you are a nimble trader and can confidently sell resistance and buy support then you may be able to do well in this environment.

I expect that during this range bound environment the fundamental picture will continue to be fairly mixed with both potentially bullish and potentially bearish news breaking on a daily basis. The direction of the break in the 50/200 relationship will telegraph the eventual development in the underlying conditions which will then show up later in the fundamental news flow.

One of the things we discussed today was the impact of monetary inflation. I have reached the conclusion that we have already entered the leading edge of the inflation trade. My interpretation of the performance of key commodities such as crude oil and copper as well as gold and silver is that they are signalling the reflation trade is at hand. I do think these are leading indicators so a further manifestation of inflation in other asset prices such as equities may be some months away.

A cause for caution is the action in the EuroYen and Yen which are potentially signaling that the Yen carry trade may not be at play and that risk aversion may be on the rise. I think these are key indicators to keep a close eye upon. The sharp break in the EuroYen below the 50 EMA today is particularly worrisome from a bullish perspective.

Have a great weekend!