Pros And Cons

My market view has become more muddled after the recent rally. There are good arguments for a move higher as well as arguments for a move lower. I will start by listing the bullish arguments.

Bull Case:

  • Intermediate term sentiment is still negative. After two months of declines market participants are underinvested .

  • The 10 and 30 day moving averages of the put/call ratios are still showing excess pessimism.

  • On an intermediate term basis the market remains oversold

  • Seasonality is positive for the next two days.

  • While the economy has slowed corporate profits have not been effected. Until corporate profits are hit its unlikely we will see more than a correction.

Bear Case:

  • The market is becoming overbought on a short term basis.

  • Seasonality will turn negative next week.

  • Some of the recent action might be quarter end markups.

  • The economy is slowing.

  • Commodity prices have barely pulled back and are gaining steam. Interest rates are on the rise again.

  • Austerity measures will hurt the economy in the short term.

  • Eventually corporate profits will suffer.

  • No mo POMO starting tomorrow. QE II ends today.

In the very short term the bear case is slightly more convincing, especially if we rally today and tomorrow. However, a pullback is likely to be shallow as the bulls have a better intermediate term case. To confuse matters even more I believe the bears have a better long term argument.

No comments: