By now, just about everybody on the planet knows the key tenets of the bull case. In short, our heroes in horns contend that stocks are discounting better days ahead for the economy, and in turn, earnings, less regulation, a "phenomenal" tax plan, and an economic stimulus package sprinkled in for good measure. And since the all of the above suggest that earnings are going to be better than expectations, stock prices can continue to move higher, we're told.
However, on the other side of the court, the bears too have a case. And while their voices have been quieted by the relentless rise seen over the past four months, our furry friends in the bear camp remind us that there are issues out there that investors will have to deal with - eventually.
Since being able to remain objective is the key to this business, I thought I put my bear hat on this morning and run down the bear argument - in a quick and easy-to-read, executive summary format.
Big-Time Overbought Condition
- The major stock market indices are overbought - very overbought
- One indicator suggests NASDAQ is most overbought since the late 1990's
- This means stocks are "set up" to decline quickly if something negative comes out of the woodwork
Sentiment Is Not Exuberant, But...
- Sentiment indicators have reached extreme levels
- In and of itself, high sentiment readings do not cause market declines
- High sentiment readings simply indicate that most of the money that wanted "in" has likely been spent
- The key to a sentiment "signal" is for the indicators to reach an extreme (check) and then reverse
- Thus, we need to be on the lookout for something to trigger traders to exit the market
Stock Market Indices Are Overvalued
- We've been through this many times and nothing ...
