Are You Just Now Getting Bullish On Stocks?
If so, as long as you realize that risk/reward in the near-term is no longer as good as it was two months ago you are in good shape. To be fair however, there remains upside potential in stocks.
A little perspective goes a long way:
The S&P 500 has risen about 15% off the June lows and the German DAX not to be outdone, ramped 25% during the same time-span. Those are no small leaps and simple logic dictates that mean-reversion moves are not too far away from such rallies.
Off the 2009 lows the S&P 500 has formed an orderly up-trending channel, the top of which currently stands at 1600. Will we get there in a straight line? Unlikely, however as long as under-invested fund managers have to chase the central bank symphony and folks believe in the thus-created illusion, upside risk remains real.
From a more fundamental point of view, however simple, the S&P 500 currently trades at 14 times estimated 2012 earnings and 12.62 times estimated 2013 earnings. Cheap? As usual it all depends on the economic backdrop, although here too as long as perma bulls believe (or have to believe) the central banks’ as well as their own stories it may well be a while longer until economic reality hits again.
The Dow Jones Transportation Index trades in a narrowing range and currently looks a smidge heavy and thus is to be kept on the radar for broader clues.
Yet many stocks remain in very bullish formations and look to continue higher in the medium-term. At the same time neutral names are turning bullish and and bearish names are turning neutral. This makes it a difficult time to lean against the market for now.
Last but not least, the European banking index is just now breaking out of a longer-term downtrend. Watch it even if you don’t trade this directly as it most certainly influences your market and portfolio.
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Serge & Team