- Sentiment is too lopsided right now. The economy has improved but a 28% rally off the Summer lows discounts that. The bear camp needs to grow a little larger in order to make the risk/reward more attractive on the long side.
- The more commodity prices and interest rates come down with the market the better. If the stock market corrects but commodities and interest rates don't than they will be a major headwind on any subsequent rally.
- Credit spreads have been fueling buyback and M&A activity. They are very tight and as long as they don't widen that much they should remain supportive of the market.
- While I believe the market as a whole holds little value at current levels, it would be nice if during a correction some individual stocks came down to value levels.
What To Look For
In my final post of the day yesterday I spoke about the time frame for a correction. The following is what I will be looking for in terms of sentiment and fundamentals to try and judge when its safe to jump back in.