Sunday, February 12, 2012

Curbing My Enthusiasm Over The S&P 500

Last week I found myself enthusiastic for the potential of a new bull market.  However the week has sobered my assessment.  While there are plenty of technical indications for confidence in a bull market, economics, market psychology, and behavioral finance tell us another story.   Technical indicators as well as actual price of the S&P 500 index are excellent indication of social mood and analysis suggests to us that euphoria has taken market participants into a dangerous herding formation.  A formation I myself fell under for the last week until again recovering my individuality and reason.  One must take a broader view of this market and be willing to recognize the distinct probability that we are topping out and that the next leg is one of decline.  Indeed contrarian indications are so pronounced we must step aside from the herd and announce our bearishness.  We are suggesting caution informed by realistic pessimism.

A sobering warning comes from Laurence D. Fink, chief executive of BlackRock Inc., the world’s largest money manager, urging investors earlier last week in Hong Kong to “be 100 percent in equities.” He later said in Beijing his call was aimed at getting cash back into the capital markets. One can hear his unspoken concerns that this bull rally in a bear market has exhausted itself without new infusions of capital.  Panic masked by enthusiasm are illustrative and indicative of impending turns of fortune.

I believe that the problems demonstrated in Greece specifically and the Eurozone in general are systemic and will continue to unravel.  Capital will pour into US Treasuries and United States stock market, but that will only bring immediate attention into the systemic problems of our economy now being overlooked, causing a failure in confidence.  Currently I don't see a bottom in the market before 2016 or thereabouts and I believe (with horrible consequence) war with Iran in some form or another will be the sign that the bottom is in place.  Subsequently I favor trading over investing believing that in short term that would be the best place to apply enthusiasm garnered by technical indicators as any further gains in this market I suspect will be short lived.

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