Trying to Get a Handle on This Market

I'm trying to look into my market crystal ball for what the nearest future holds.

Technicals

Technicals are mostly pointing up. S&P and Nasdaq composite are well above their 200-day moving averages and above 50-day and 13-day averages. The Dow still can't get over its 200-day MA with conviction, but I don't know how relevant the Dow is right now. The markets are overbought but they have been overbought for more than 3 months already. There is a small reverse head and shoulders formation in the Dow, and kind of the same in S&P, but it's not conclusive for me.

Sentiment

Sentiment is still bearish. The majority of the TV pundits are bearish, majority on the internet are bearish, even Warren "be greedy when everybody is fearful" Buffet is bearish. I don't see buying panic, which is surprising after 3 months of a bull market. Sentiment being a contrarian indicator, this is very bullish.

Fundamentals

Nothing to write home about. "Green shoots" mostly exist in the imagination of bulls. Sure, speed of the decline has slowed, but the economy is still going down. Deflation rules, despite all efforts of the Fed. Companies beat expectations, but most of those are very low, and year-to-year comparisons are scary. Fundamentals are as bearish as they can be.

Other stuff

This is the end of the quarter. After the whole bull market quarter you'd expect huge window dressing buying. Somehow it failed to materialize. Huge bull market in commodities is even more confusing: There is no growth in the economy! There is no increase in demand of physical products. However, lots of fund managers are buying commodity futures left and right. They think that they are buying "hard stuff" and not so long ago we heard the same thing about real estate. And, of course, commodities crashed last year, destroying a lot of capital so there is no reason why they won't crash again. Another problem with the commodities boom: higher commodity prices are putting the brakes on possible economic growth. I think these points are bearish.

Conclusion
By 2 to 1 vote, we should be in bullish territory. But fundamentals are still bad, and they matter more than technicals and sentiment combined. I am going to do nothing right now and try to understand what market is telling me. Of course, I will make an occasional trade if I feel like that.

Comments

[Old Trader:]

I definitely agree things are ...errr...."less than clear", and as a result, find myself with a fair bit of cash, bonds, and a smattering of large cap blue chips. I'd being willing to concede defeat and swap my bear claws for a pair of horns, if only there was some volume, which has been MIA for the bulk of this run up, it seems.

Jun 30 09:06 AM

[Alphameister:]

There is a global bull market emerging with the US lagging badly. The US will continue to lag as green shoots struggle to survive the noxious policies emanating from Washington. The US will be a drag on the global economy for the foreseeable future. The outlook is brighter and more clear on the other side of the world.

Jun 30 10:09 AM

[Larry House:]

Doing nothing sounds right. I don't agree that certain areas of the world can pull the U.S. along. Those countries do business with the U.S. They do not have consumer bases that can propel their econmies without us. The BRIC countries are not all that attractive either--at the moment.

Jun 30 02:38 PM

[untrusting ...:]

Larry, doing nothing won't make you much if you are mostly in cash. Better to sell put options, collect the premiums, and buy at lower prices if they get there. Would agree that it is much too risky to buy stocks anywhere in the world right now. Seems much more likely that some type of decent downward correction will happen over the coming 1-3 months. Would be very suprised if the US stock market does not correct by at least 15-20%. Watched the S&P quarterly webcast summary with Sam Stovall today and they believe correction is probably starting soon



On Jun 30 02:38 PM Larry House wrote:

> Doing nothing sounds right. I don't agree that certain areas of the
> world can pull the U.S. along. Those countries do business with the
> U.S. They do not have consumer bases that can propel their econmies
> without us. The BRIC countries are not all that attractive either--at
> the moment.

Jun 30 09:53 PM

[sod:]

Doing nothing? There is always gold, bullion or stocks. As the dollar continues to weaken gold and oil will continue to gain.

Sep 03 11:23 AM