Indifference . . .

It seems to be common knowledge that the Bulls and Bears have battled to a draw. Rallies get sold, sell offs get bought, equilibrium holds. Some strategists such as Bernie Shaeffer are calling for Dow 8,000, others, while others, like Doug Kass are looking for a strong oversold rally. Then there are the outliers of the world, including Don Hays, who are looking for very significant moves towards new highs.

The opposite of love is not, as so many people misunderstand it, hate. Those emotions are both passionate responses to a thing deeply cared about. Indifference, on the other hand, is a reflection of a lack of passion. Investors continue to demonstrate neither love nor hate for equities, but rather, Apathy. Thus, the exasperating markets of late.

The recent low volume action continues to remind us of the interminable period of Q1 2003, just prior to the Iraq war.. After the capitulation low in October 2002 – dumping tech stocks for less than their cash on hand was an example of investor hate, in our view – the market came in for a lighter volume retest in March 2003.

Looking back on the March 2003 retest: Duct-tape alerts frayed nerves to the point where investors were distracted by other, more important geopolitical matters. A buyer’s strike made rally attempts unsuccessful – but the lack of heavy distribution frustrated the Bears. We are now in the midst of an eerily similar process, albeit minus the pre-war tension’s denouement once the war actually began. Presently, we wait for a resolution of the Abu Ghraib prison scandal, we ponder how the U.S. will fare in moving the nation building process forward, we fret over the continued U.S. casualties.

While it appears to us that there has been a big upswing in criticism of the Iraq war’s prosecution, what has been so surprising to us has been where these condemnations are coming from: The Wall Street Journal, 4 star generals and the Army Times.

In our view, these are not your run of the mill critics, and are hardly to be confused with liberal think tanks.

Of the 900 points the Dow has lost from its April highs, the majority has happened since the Iraqi prison photos were released two weeks ago. Combine these geopolitical factors with the latest wait for the Fed to hike rates and a low-volume retest then makes some sense to us

The opposite of love is apathy and indifference. In our opinion, that is what the markets are experiencing now – and probably will continue to be stuck with, until after the Fed raises rates, and the situation in Iraq becomes less murky.