Market direction over the next 3 to 4 months?

We are at an interesting place in the markets today. Let's try to evaluate.

Two most influential factors in my opinion:

1. Katrina: This is a truly unfortunate disaster but I must say that what doesn't kill the market only makes it stronger just as in this case. Disasters equate to federal spending and donations. A lot of federal spending is done in the initial 1 or 2 months and then it pans out over the next few years. This spending really helps the economy. Walmart after closing a 100+ stores is reporting same store sales are up 3.8% (high end of expectations). Consumer confidence came in really low. After early October earnings season, if earnings aren't affected by Katrina, consumer confidence numbers will spring right back up in time for the holiday season. Point in case 9/11 bombings and the subsequent fall in September and bounce back in October / November. This unfortunate disaster has a positive short term effect on the market in my opinion and I must take the contrarian view to CNBC.

2. Technical levels: We attained 4 year highs a couple of months back and inspite of Katrina and it's immediate effect on the markets, we have maintained the technical levels quite well. We just crossed the 20 DMA and could cross 50 DMA and re-establish the upward trend. Believe it or not, we have eked out gains in the September month which is usually the weakest month of the year. October on the contrary is the strongest month of the year with an average of 2.8% growth in the index.

Some other positives:
- Corporate profits and cash positions at an all time high. Not necessarily displaying growth but companies are healthy and their operations are fairly streamlined.
- Worldwide markets are taking off: Nikkei, Germany, India and some other Asian countries are at 4 year highs and that bodes well for investor sentiment.
- Inflation in control and fed monitoring the markets tightly. No liquidity concerns yet

Summary: We all need confirmation of earnings not being affected by Katrina. Wait for the first few days of October and watch out for any warnings and then buy into sectors or companies you believe in.

p.s. Please contain you excitement on India. There is such a thing as too much too fast and BSE needs to show support at these levels in my opinion.