This blog post originally appeared on RealMoney Silver on Jan. 10 at 7:24 a.m. EST.

The U.S. equity market is at an important juncture.

Technicals are flashing green, but fundamentals remain solidly in the red.

Technicals

I closed "The Edge," my RealMoney Silver trading diary, yesterday with a post on the S&P 500 10-day put/call ratio, a good indicator of the current high level of fear and negativity.

S&P 500 10-Day Put/Call Ratio
Click here for larger image.
Source: Bloomberg

Other measures, such as many of Helene Meisler's oscillators, are at (or approaching) deeply oversold levels.

Consider that the KBW Bank Index ( BKX) is currently 24% below its 200-day moving average.

KBW Bank Index

Click chart for larger image.
Source: Bloomberg

That size discount to its moving average has been apparent only three other times in history (Oct. 7, 1998; July 23, 2002; Oct. 7, 2002). On all three occasions, the BKX was within a day of a major low -- only to rise by 33%, 25% and 28%, respectively, a month later.

Fundamentals

Stated simply, fundamentals stink.

Earnings expectations for most companies -- particularly for the financial sector (far worse than in 1998 and 2002) -- are clearly, in the fullness of time, worsening.

With the current conflict between improving technicals and deteriorating fundamentals, we are at a point in time when investment decisions are quite difficult as investors are impelled to answer the following question:
To what degree has the recent stock price decline discounted a likely recession in 2008-2009 and falling/disappointing corporate profits?

Unfortunately, this question is harder to answer than the riddle of the Sphinx.

At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.

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