Is the perfect storm in the brewing?

Its always a tussle between the Bulls and the Bears; The victory for either of them is temporary, for it is determined by the combination of government actions (fed), Psychology of the masses and by free market forces. These forces can change their minds and act together or act one against the other. The final outcome is the sum of all the resultant forces and sum of all resultant directions. Sounds like, we need Newton to resolve this for us, huh?

So the forces on the bear side are:

1. Possible spillage of sub-prime woes to rest of the market. Though chairman Bernanke has testified that this has not happened so far, we will have to wait to see the sub-prime mortgage effect.

2. Oil price is spiking; mainly due to the Iran crisis escalation with British marines. Not sure where the Oil price will stabilize, but this is bound to affect the economy

3. What about the trade embargo that democrats have taken up against the Chinese. President Bush might VETO this out, but this can cause uncertainty in the market.

4. Q1 results are about to start in the second week of April; COuld this trigger the turmoil in the market. Corporate profits are widely expected to fall below 10% and if it does, that may tumble the market.

5. Consumer confidence declined last month.

6. Of Course, The yield curve still inverted or may be flat.

The BUll side line up includes:

a. Continued Bull run from last year. This has lot of resiliency left in it, as was evident in the recovery from Feb 27th free fall.

b. Hope of interest rate cuts in the Summer has cheered investors. The fed language this week did not include rate hike possibilities, but the fed will still have to fight the inflation in the light of rising energy prices.

c. Some surprising Manufacturing results from Chicago unit this month.

d. M&A activities and private equity take over still continuing to help Bulls.

Now, is there a correction in sight? what is going to trigger the correction. My speculation is that the Q1 results can answer this question and hence April may not be a easy ride. What say you?

Nidhi