We have been struck by two developments over the course of the year with regard to the U.S. equity market. While they are by no means conclusive, we would venture that they do constitute significance regarding the likely future direction of our stock market. The straws to which we have reference are: These indicators are, of course, CONTRARY INDICATORS, and, as such, are of substantial value, in our view. Consequently, we believe that they point to a substantial further rise in stock prices. The sentiment climate among retail investors is remarkably bearish within the context of a powerful, multi-month rally. Typically, such a rally would generate a major change in investor sentiment, with bullishness supplanting the prior bearish view. This, most assuredly, HAS NOT HAPPENED. If we accept the hypothesis that retail buys at the top -- and we do -- then we have a long way to go before said top arrives. Anecdotally, we would also note that the preponderancy of commentary insists that a "correction" impends (and, in this view, has been impending for months), that stock prices are "way too high," that they have gotten far too high relative to the actual and prospective degree of economic recovery. Endless worries are trotted out daily regarding the decline in the dollar, the coming (coming??) crash in commercial real estate, the approach of d-day for bank refinancing, the parlous state of bank "assets," the deficit problem, the debt problem, weakness of consumer spending, etc etc. While some of these assessments may prove correct, it is neither here nor there insofar as stock market movements in coming months are concerned. Moreover, since this stuff fills the airwaves and the print media, it constitutes powerful background noise, which is almost always wrong. Conclusion: the odds favor the bulls, unless and until the generality of the media and the mass of retail investors become notably bullish. Moneysage - 2009 - copyright |
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