Corporate Buybacks Retail Sellbacks

A lot of traders are puzzled by the resilience of this market, despite the weak economy and investor disinterest.  What is driving this market higher?  It is not fund flows.  We have had outflows every month since May.  It is not the Fed, because they haven't been expanding their balance sheet, just maintaining the current bloated status.  Share buybacks have helped the market maintain its bid.  "U.S. companies have announced $258 billion in buybacks so far this year, compared with $52 billion in the first three quarters of 2009, according to data compiled by Birinyi."

Corporations are borrowing debt at low interest rates to finance stock buybacks. So they are in essence selling bonds to investors buying the bond funds and buying stock from investors selling the equity funds.  Whoever talks about deleveraging is out of their mind.  Yes, the housing market is deleveraging, but the government and corporations are not.  The can is being kicked down the road. There is no coiled spring, it is limp.  

Ultimately, investors have to start putting money into the stock market, stock buybacks can't keep this rally going forever.  That is why I am pessimistic.  I just don't see the big inflows into stocks or the earnings growth that can ignite a big bull market.   The April highs are insurmountable.   At the same time, stocks are not overowned, so that eliminates any 2008 scenarios.  It is going to remain a trader's market, until valuations get low enough.  We are not there yet.

For today's trade, I am expecting a pullback lower.  I think it could continue till Wednesday.