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GREEN LIGHT ON EQUITIES

|Includes:SPDR S&P 500 Trust ETF (SPY)

I am partly re-committing to equities after having been cautious since April 2012.

  • The S&P 500 Index is 25% undervalued based on the Rule of 20.
  • Earnings have peaked but are not collapsing like in 2007.
  • Inflation has slowed and seems unlikely to re-accelerate soon.
  • The U.S. economy remains ok. Avoiding the fiscal cliff removes a big short term threat. Christmas sales look ok.
  • Oil prices are not a big threat although Middle East tensions remain.
  • The Fed keeps pumping.
  • China is not hard landing, actually showing signs of re-acceleration.
  • Europe remains in poor shape but the ECB will act as a backstop if things get worse.
  • Technically, U.S. equities look good with stocks above the rising 100-day and the 200-day moving averages. Technical downside is 1390 on the S&P 500, -3.3% from the current 1438 level.
  • Not a slam dunk but, all in all, the risk/reward ratio is very favorable and many catalysts are turning positive.

Larger Rule of 20 chart here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: SPY