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This is the season for year ahead forecasts, but I hate doing forecasts so I won’t be doing one [*]. (BTW, I recently did an interview here that largely outlines my views for 2010.)

I believe that equities remain overvalued and overbought, but overvalued markets can stay overbought for a long time. ZeroHedge, which seems to have a slight predilection for conspiracy theories, quotes Charles Biderman of Trim Tabs on the possibility of government intervention in the stock market:

This type of intervention could explain some of the unusual market action in recent months, with stock prices grinding higher on low volume even as companies sold huge amounts of new shares and retail investors stayed on the sidelines. For example, Tyler Durden of ZeroHedge has pointed out that virtually all of the market’s upside since mid-September has come from after-hours S&P 500 futures activity.

If we were involved in a scheme to manipulate the stock market, we would want to keep it in place until after the “wealth effect” put a floor under the economy of, say, three quarters of positive GDP growth. Assuming the economy were performing better, then ending the support for stock prices would be justified because a stock market decline would not be so painful.

While the evidence is consistent with government intervention, I have no idea whether the Plunge Protection Team (PPT) has been active in the market and I don’t care to guess.

Teaching you how to fish

Given the current backdrop, the downside risks are likely to be much higher than upside rewards. My inner trader tells me to wait for signs of technical breakdowns before either more defensively or aggressively committing funds to the short side of the market.

Giving my readers a market forecast is like giving someone a fish. As the saying goes, if you teach someone how to fish… (they’ll want to buy a boat.)

[*] If tied to an anthill, I would bravely forecast that the S&P 500 is likely to trade between 500 and 2000 in the coming year.

Source: In Lieu of a 2010 Market Forecast