(GRAPH: FTSE-100 Index At Midday Today - 21/07/08)

As we continue to reach out for any good news I was quite intrigued by the following article from JP Morgan Asset Management which along with several others of late are starting to come from other angles. Still early days but maybe the start of some light.......

"The start of the great summer bounce? Weaker oil prices were the spark for a resurgence in equities this week. It provided a catalyst for a summer rally from deeply oversold levels. Indeed, our short-term timing indicators suggest there is scope for some follow through on this rally. Stocks are oversoldvs. bonds, while positioning data show that investors have savagely cut their equity weightings. Indeed, according to the Merrill Lynch Fund Managers’ survey, they are now running the highest cash weightings in the history of the series(see COTW). Moreover, sentiment is very depressed, judging by low levels of risk appetite, while global sector breadth has fallen to levels that suggest a bounceis due. Add to that an encouraging start to the Q2 US earnings season and further signs that the US economy is set to grow by an annualised 2%-2½% in Q2, with signs that restocking could partially offset the post tax rebate slump in consumption in Q3 and the markets have taken the view that the world is not about to end…yet.

However, for us the key investment question now is whether thereis a case for buying equities for more than a summer trade. We will address this question in the coming edition of the World Market Outlook, which will be released on Tuesday. We have updated analysis we undertook in March, when the market last bottomed, using a checklist of conditions required to be met to justify a higher strategicweighting to equities. Then we judged that the strategic case for risk assets was building but was not compelling.

We have updated and expanded our checklist, looking for evidencethat: (1) the credit crisis is improving; (2) that banks have done the bulk ofthe heavy lifting in recapitalising themselves; (3) that central banks are willing and able to ease further to support activity; (4) that the economic outlook for growth and inflation has become clearer, with clarity on the extent of the economic slowdown and some visibility about the peak of the inflation cycle and realism regarding 2009 earnings; and (5) that investors are paid to take equity risk. As in March, we find that the strategic case is still not compelling, although there are glimmers of encouragement on the valuation and bank recap fronts. The great summer bounce could welbe underway and indices could run further into the coming weeks, but we would not chase it from a strategic perspective."