Market Call: Less Risky

The bears say that the 17.4% rally in the S&P 500 between June 16 and August 16 was a short-covering rally. Now that the index is down 8.8% from its recent high, they say the bear market isn't over and will soon take out its recent low. The bulls (including us) believe that the latest bear market's bottom will hold, and won't be retested. A true test of who is right is likely to occur on September 13 when August's CPI will be released. We're expecting a bullish number.

We weren't surprised by the recent drop in the market. Our August 21 QuickTakes was titled "Market Call: Risk Off." We wrote: "The stock market is overbought."