Three Reasons To Be Bullish

There are three reasons to be bullish and none have anything to do with a robust economy. Valuations are very reasonable, sentiment is extremely negative and we are about to enter the seasonally strongest months of the year.

Even with lowered estimates the S&P 500 trades at its lowest multiple to trailing twelve months and forward earnings  in decades. We are currently trading at less than twelve times next year's lowered estimates. Almost every sentiment indicator is pointing to extreme pessimism. Historically, it has paid to buck the crowd when they have been this negative. Thirdly, we are entering the strongest six months of the year.

There are certainly risks as imbalances that have grown over decades are coming home to roost. However, with Lehman Brothers so fresh in the minds of policy makers it seems likely that they will kick the can at a minimum. While I respect the risks, I believe the odds favor a higher market. That said, the imbalances keep me from being as aggressive as I would like to be.

4 comments:

Tom Murak said...

Dream on...........

Tsachy Mishal said...

I believe you lost your way. This is not the Yahoo message boards.

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MarketOwl said...

I don't think the valuations are that compelling, but then again, valuation is not really helpful from a short term trading perspective, and it seems like you are focusing on the short term.  Sentiment is a coincident indicator, because I can just look at a chart and tell if people are all bullish or bearish without looking at any surveys or put call ratios.  The market is up, people will be bullish.  Market is down, people will be bearish. 

S&P is at the same level it was last year in November.  Does that make it a good buy?  I don't think so.  Sure, the market is buyable for a trade but long term investments at these levels won't result in any home runs, maybe some singles and doubles.

Tsachy Mishal said...

12 times earnings is a pretty decent valuation for the overall market. You dont get to buy stocks on the cheap when everything is great. I have many solid companies in my portfolio with free cash flow yields of greater than 10%.Companies with little economic sensitivity like Vodafone.