My enthusiasm for the market has been tempered in recent days for two reasons. The European rescue package is weaker than I had hoped for. I believe that the EU will eventually rectify the situation, but there is the risk that the market needs to have a fit first. The second reason is that sentiment is no longer as supportive of the market.
While I still believe that hedge funds and larger investors are under-invested, I now believe that shorter term traders are long again. The latest Rydex data shows that traders have positioned themselves more aggressively.
Seasonality will be turning very positive in the coming days. With $100 in S&P 500 earnings projected for next year, current valuations (12.3 times 2012 earnings) are decent even if earnings come in slightly lower. Levels of share repurchases and cash M&A remain high. I still believe the market has more positives than negatives but I am less enthusiastic than I have been to this point.