Friday, April 26, 2013

One Resilient Market

It is a tough market to trade, because the market is going up from multiple expansion, not earnings expansion.  The fundamentals aren't great, but we keep going higher.  For a rational fundamental trader, it is hard to figure out why we're so strong.  The only explanation is demand for US equities from overseas, and the shrinking supply due to M&A and share buyback programs. 

This is not a classic uptrend in the sense that the economy is weak, earnings are stagnant, and there is no positive economic data.  These kind of uptrends are not that common, especially with these fundamentals four years into a bull market.  So without history as a guide, one has to instinctively project future prices.  And my instincts tell me that we're going to go higher into the fall, with probably one scary shakeout between now and June.  I expect us to be between 1650 and 1700 by the fall.   I have no fundamental basis for this view other than a continuation of float reduction with share buybacks and limited IPOs and secondaries. 

I am not interested in playing for the last leg of this rally, even though I see it coming.  But I sure won't be playing the short side much either as that is counter to my instincts.  So not much to do.  Tough market!

No comments: