Farrell: Yesterday, Today & Reality

Don't expect the market to go up today.

Famed technician Laszlo Birinyi noted this morning that there have been five other days since 1990 where the market closed up at least 6%. On average, the market closed down the next day (profit taking) and only once did it close up.

It would be fine with me if this were to be the second time we had an up day after such a strong advance, but don't count on it, and don't be disappointed by a down day.

For what its worth, I'm hoping that the S&P's 50 day moving average at 796 or so will prove to be a line of support now that we have closed well above it (822 close on Monday.) We need to build a base of some months before we can hope to move meaningfully higher from here, but a base at 800-ish would be wonderful. The biggest risk to that thought is that the July lows around the 750 zone needs to be the area of base building. Actually, I guess the biggest risk is we could go to zero.

From a fundamental viewpoint, a lot of bearish earnings estimates for 2009 are around $40 for the S&P. The same bears have an average of $57 in earnings for 2010. Baron's reported a few weeks ago the average trough multiple in bear markets has been 13.9 times. 13.9 times $57 would be 792, right about the current 50 day moving average. When inflation has been less than 2%, as it is now, the average multiple has been 18.4 times. 18.4 times $57 equals a value of 1048. Average the two and you get 920 which might be a fair objective for the S&P for this year. Food for thought and debate.