Now for some good news…

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Now for something entirely different – someone in the media actually looking for some good news among the crappy and negative stories that have been creating worrying headlines and leading to the market sell-off.

What I’m saying is this: the sell-off was understandable, but I question the intensity of the fire sale. And the old saying I mentioned last week has proved true: “Stock markets go up by stairs and go down by elevators.”

But before I recap on the reasons for the bad market results, let’s just hold one important thought: based on the figuring of RBS Morgans’ chief economist, Michael Knox, the local stock market should be at 5,700. It’s now around 4,200, so there’s so much room for an upside rally based on objective calculations that we’d have to be happy with even a half-result.

This would take the index close to 5,000, which I think is possible if the Yanks can dodge a double-dip recession. That would be a rise of more than 20% by Christmas – and that would be a nice present!

OK, let’s get the negatives out of the way, and they include:

  • The Philadelphia Fed’s factory index (which looks at current activity) dropped into areas historically associated with recession.
  • The New York Fed’s Empire State manufacturing index of general business conditions fell further into negativity territory.
  • The Richmond manufacturing survey fell from a negative 1 to a negative 10, which was miles worse than expected.

These all follow a run of pretty bad news that suggests that the US economy really is slowing down.

These bad readings are hot on the heels of the debt debacle in Congress, S&P’s downgrade of the US’s long-term credit rating, and the mismanagement of Europe’s sovereign debt bailout. This has now raised question marks over European banks, making some market players wonder whether US banks could be infected by a European-bank ailment.

Lately, US banks have been clobbered, but Bank Of America’s (BOA) share price jumped 11% overnight and analysts are giving the bank more favourable ratings. (I’m currently in Miami and so I’m watching the US stock market move at close quarters. Watch BOA as an indicator.)

On the flipside, I’m seeing some US economic and market positives, which I hope can be augmented by some better European political decisions in the weeks ahead. These could be bolstered by Ben Bernanke coming up with a great speech at Jackson Hole, Wyoming tomorrow.

We’ll see the results of his utterings in Saturday morning’s reports on Wall Street. This could be a critical turning point either way for stock markets.

On the positive side, this is what I’ve seen lately:

  • The VIX or fear index is falling.
  • Gold dropped a hundred bucks overnight – and that’s a good sign.
  • Durable goods orders were up more than expected.
  • US home prices were up 0.9% in June.
  • US bank lending went up for the first time in, wait for it, three years!
  • European shares registered a one-week high.
  • US company reporting has been better than expected and corporate balance sheets are much stronger than when the global financial crisis hit.
  • My favourite market tipster, Abby Joseph Cohen from Goldman Sachs, is in the ‘no recession’ camp and she’s a good judge. I’m backing Abby on this one.

If these green shoots can turn into real branches, then Michael Knox’s optimistic forecasts based on what collectively, individual companies expect for their sales and bottom lines, then we could see the bulls run madly through the picnics the bears have been having of late!

Maybe these branches could form the steps of the next move up for stocks. I damn well hope so.

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