Bulls Advantage

I learned the hard way time and time again that it rarely pays to fight the market at this time of the year. In the past 10 years the market has not been down once in the period between Veterans Day and New Years. There are some negatives but not enough to tilt the odds in favor of the bears.

There are some worrying signs in sentiment such as Rydex trader positioning and the AAII survey, which are showing high levels of bullishness. However, more broadly the sentiment indicators are not showing excessive bullish sentiment. The 10 day moving averages of the put/call ratio's are showing high levels of puts.

We have seen higher levels of insider selling, IPO's and secondaries in recent weeks. This supply of new stock does not help the market but is pretty typical after a strong rebound. High levels of share repurchases and cash M&A help offset this supply.

I believe the appointment of Mario Monti as Italian Prime Minister takes the worst case scenario in Europe off the table for now. This should appease the hawks in Europe and buys Italy time. I believe the path of least resistance and maximum frustration is higher.

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