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Monday, October 24, 2011

Market Thought... :)

What ever happened to the aggressive US recession call by ECRI? The market now looks to be calling 'bullshit', too.

The market is re-capturing its bullish structure.  IMO, very bullish.

Although, there are still a few resistance levels to be cleared.

Good signs for this market:

1. Earnings are doing very well.  The SP500 2011 EPS looks to want to approach 95-96 based on the numbers being witnessed.

2. No hard landing in China. The HSBC PMI figured showed expansion in China, reversing last months contraction.  Since the HSBC data is more mid-size factory focused, the Chinese financing actions on smaller firms looks to be playing a role here. Regardless, the number is good.

The risks to the down side are falling by the waist side, and increasingly the only play becomes up.  With an EPS of 95, the SP500 will be at 1330 for a trailing multiple of 14. (This does not include a potential multiple expansion thesis.  But based on individual stocks, multiple expansion is coming.)

The few things I do concern myself with:

1. The Super Committee. We need resolution.

2. The EU resolution.  Right now, there are certain vulnerabilities that the bond-boys will exploit.  For instance, the EFSF is predicated on AAA status, and when France loses that status, this may provide a hick-up. Also, if EFSF bonds are allowed to trade, any weakness seen can be utilized to justify so sort of end-of-world scenario.  And right now, the bond markets are showing these concerns. (French bond concerns and EFSF bonds)

3. A recession in the EU area.  The latest EU data was not pretty. This maybe used to temper 2012 SP500 earnings expectations.

So long as a potential credit freeze is off the table, the markets will trade based on earnings and macro economic conditions, with the above acting as potential hick-ups along the way.

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