Right now, in my opinion,
1) There has been no panic and people are still buying dips.
2) Stocks are still too expensive from a bottoms up perspective (margins near record highs have risks to downside, P/E's too high, dividend yields too low)
3) Macro environment deteriorating (inflation is going to tie central banks hands with PPI soaring and lots of countries already tightening, increased chance of oil spikes hurting demand, Japan will remain a disaster for a while, Europe is broke and several countries are seeing intensifying depressions, no more stimilus spending in this Congress, municipalities and states in financial turmoil, etc).
4) Other markets have broken down badly (both Japan and emerging markets and increasingly places like France...the NASDAQ too is very weak).
All these signs to me point to lower prices ahead. We now have rallies being sold and volumes increasing and a series of lower lows. We have conditions in place to keep selling in other words.
I want to know people's reasoning for buying stocks at these levels. I can see big downside risks to corporate profits and lots of macro risks but no good reasons for sustained stock market upside other than 1) a hyperinflation/dollar run scenario...and even that scenario would likely be very negative for stocks near term if it happened. I.e. take a look at countries like Mexico or Argentina when their currencies gave way...first you get a few weeks months of chaos financial turmoil where everywhere is liquidating and foreigners are repatriating capital. THEN people realize that stocks are too cheap in local currency and spark a massive rally....or 2) traders following trendlines...but now many important trend lines have been decisively broken.
Please tell me why we should buy at these levels for the longer term or why markets are going to new highs. I want to keep an open mind. I think the market has likely peaked or put in the first part of double top at worst. My guess is once we finally find a trading bottom here we'll grind higher for a few weeks into May/June, at which point the heavy selling will emerge from a lower low and people will realize we have peaked. So maybe a trading low of 1180-1220 or so in the coming weeks, then a recovery of about 6-8% slowly like march-may 2008, and then heavy selling (much heavier than now) that leaves no doubt that the bear market has resumed.
2011 Year-end target is about S&P 950-1050. I think the big selling will come in the summer and fall following a sucker rally this spring to about 1280 that grinds higher and lulls people into complacency once again.
Edited by Macro Speculator, 16 March 2011 - 03:38 PM.
