Tuesday, November 27, 2012

Reitmeister 2012

Profit From the Pros archive

[12/22/12] The evidence here is overwhelming. Consider that the average stock market PE is 15. Now apply that to the $113 per share expected for the S&P 500 next year. That computes to 1695. Even if you say that those earnings projections are too high (which I agree is the case), then trimming it down to a more conservative level of $105 per share still gives us an S&P level of 1575.

Now consider the landscape. The 10 year Treasury is paying a meager 1.75%. Your checking account and CDs are offering even less. Typically the earnings yield on stocks is 3% higher than the treasury rate. Meaning that stocks should be offering investors a 4.75% likely return.

The earnings yield is nothing more than turning the P/E ratio on its head. So when we divide the $105 projected earnings next year by the current S&P reading of 1430, we get a 7.34% earnings yield. Even more abundant proof of the undervalued nature of stocks at this time.

With all the above, I am very comfortable putting out a 2013 target of 1600 for the S&P. That is still only an earnings yield of 6.56%. So if we get towards the end of the year with GDP in healthy shape and no recession on the horizon, then we could even get a good stretch above 1600.

[11/27/12] Stocks rallied for five straight sessions all the way up to 1409. So not surprising that bears wanted to test the 1400 level on Monday.

After getting down to 1397 buyers stepped up en masse with shares rallying up to 1406 at the close. So for now 1400 is providing solid support. However, if we see any weak economic data or any Cliff controversy, then we will likely find ourselves below that mark for a while. That is only the short term picture.

Years of trading have taught me to always be keenly aware of the primary trend of stocks. That has been firmly bullish since March 2009 and should not be so easily tossed aside. Meaning that the market currently has an upward bias and to bet against that is likely unwise.

[11/15/12] Wednesday's decline was all about the Fiscal Cliff. The President upped the ante with talk of $1.6 trillion in tax hikes for the wealthy. This is twice as much as he requested in the past. That was enough to make investors head for the hills.

I don't believe for a second the President really wants to raise taxes by this amount. He is deploying an obvious negotiating trick that serves both parties well.

Say what?

If the President asks for more than he wants, then after negotiations are done he will get an amount closer to what he REALLY expects. Plus the Republicans can brag to their constituents that they bent over backwards to make a deal work for the betterment of the country. Yet were still able to cut the President's demands in half.

Unfortunately that means we are at the point of the process where the rhetoric increases on both sides making it seem like no deal will be made. That is why stocks clearly broke under the 200 day moving average and probably on the way to 1300.

When all is said and done a deal will be reached. There will be no recession. And stocks will sprint higher.

Given what I said above, then traders should expect a touch more weakness down to 1300. But longer term investors should see this as a great time to load up the truck with #1 Ranked stocks trading at attractive discounts.

[11/1/12] The S&P 500 declined 2% in October after four straight months of gains. Now we make way for November. Traditionally this is a good month of the year as the market generally drifts higher into the Holidays. (What many dub the "Santa Claus" rally).

Will Santa pay us a visit this year?

I believe the answer is yes with a good shot to make 1500 to ring in the New Year. Why? Improving economic conditions and lack of other good places to put cash to work means that stocks are the place to be. That is why I just moved to 100% long stocks in my trading account. [So good call.  Lighten the longs on 10/19 when the market plunged from 1460 to 1435.  And back in at about 1412 today.]

Unfortunately not everyone shares this positive view. And, as you already know, we here at Zacks believe it's important for our commentators to independently come to their own conclusions on what happens next. This is much better than for them to falsely follow some company edict that doesn't jive with what their senses are telling them. And much better than us giving you advice that is 100% wrong.

So below you will find Sheraz Mian's market outlook. Compare that to my bullish view and then move forward with what makes the most sense to you. And if you are unsure, then the right answer is to straddle your portfolio between these alternatives to hedge your bets.

Market at a Crossroads

[10/24/12] Previously I thought that 1400 was all that was needed. But now I realize that it's been about five months since we last touched the 200 day moving average. So now seems like a good time to do it again to test investor conviction. That is a healthy process in all bull rallies before pressing higher.

The 200 day rests at 1375. That is where I think we are headed next. And probably will take place before the election. So let's look for a spot under 1400 and relatively close to 1375 to load back up for the next leg higher.

[10/19/12] The clamor of bad news from tech only grew louder on Thursday thanks to a premature press release from Google showing a massive earnings miss. This was followed after hours by disappointing news from Microsoft. When you combine that with poor showings from Intel and IBM it becomes hard to find a silver lining from this news.

What does it mean?

This weak earnings season is only getting weaker. The number and variety of companies with lackluster news extends beyond these tech behemoths. It may become hard for the market as a whole to trudge higher at this stage without some stronger catalysts.

Yes, I recently said that stocks were undervalued. That is unchanged. But investors never take a straight path from undervalued to fair valued. Instead we take more of a meandering course with tons of detours and pauses for reflection.

So after moving up towards the highs once again, I think we will sink back lower in the range. And probably will stay there through the election. Afterwards, if the economy is improving as it is now, then we will likely have a Santa Claus rally that gets us to around 1500.

As such, I am lightening up my long positions til early November in my trading account. Then plan on getting back to 100% long with good odds of making new highs to ring in the New Year.

[so his 100% long lasted two weeks - looking at those two weeks the market immediately proceeded down from about 1460 to under 1430, then recovered to 1460.  And he was right to sell before Friday's open as the market plunged.  ... but now it's getting low enough to buy, we'll see when Reitmeister jumps back in.]

[10/5/12] Don't waste your time with any article telling you that stocks spiked Thursday because of Romney's showing at the Presidential debates. Why? If true, then it would mean the outcome of the election is a greater question mark. And since investors loathe uncertainty, then they would never celebrate this outcome.

So why are stocks pressing towards the highs once again?

Simply stated, the economic data is getting better. Employment is perking up. Ditto for improvements in the manufacturing and service sectors (especially the latter given a glowing ISM Services report this week and better than expected retail sales).

No the economy is not soaring. It just clearly shows that the Muddle Through pace from the last few years is intact. No recession on the horizon. And stock ownership ain't such a bad idea in that light. In fact, I went to 100% long Thursday for the first time in many moons as I think we have a real shot at hitting 1500 soon.

[9/26/12] Stocks were looking good early on Tuesday. Continued traction on home prices was part of that mix. Soaring Consumer Confidence reading certainly helped. And just for good measure the Richmond Fed Mfg Index was the 2nd regional report showing strong improvements.

So why did stocks collapse into the close?

Because one of the Fed Hawks, Philly Fed President Charles Plosser, gave a scathing rebuke on the latest round of quantitative easing. He sees little economic benefit in the near term. And higher inflation in the long term.

I happen to agree with him. But for me it doesn't change the Muddle Through shape of the economy. Nor the general attractiveness of stocks at this time.

So there may be a little more downside to shake out recent complacency. Yet on the year I doubt we have seen the highs yet.

Read: Buy the dips.

[9/25/12] Ronald Regan was called the "Teflon President" because nothing bad ever stuck to him. And that same non-stick quality seems to be in place for US stocks these days.

It still has been a good two months since the last real correction. And during that time there have been plenty of days with weak economic reports that could certainly spark the decline. Yet it continues to not happen.

Monday was another session where poor headlines from Europe had our markets deep in the red early on. Amazingly stocks shook off most of that pain by the end of the session. This is generally considered bullish movements as investors are buying every dip.

I still think there is a tad too much complacency amongst investors. So there should be a 3-5% sell off in our future. The main question is whether that will come before or after we take a shot at 1500??? Because I think it's a coin flip call is why I am currently 68% long stocks in my trading account.  [which means the market is high, but could go higher]

[8/16/12] Still many investors scratch their heads at the current height of the stock market. And certainly there are some data points and trends that are disconcerting. Yet when you boil it all down, this is the formula that is holding US stocks aloft.

Earnings Yield > 3% above 10 year Treasury Rates

Earnings Yield is a way that investors consider the general attractiveness of stocks. All you do is flip the PE of the stock market around. Meaning divide the earnings per share of the S&P 500 by the current price. Here is how that adds up:

$102 EPS / 1405 = 7.26% earnings yield

Traditionally the earnings yield for stocks is about 3% above the ten year Treasury rate which currently stands at 1.8%. The spread here is 5.4% which is 80% more attractive than the historical average.

It is for this reason that investors have been buying up US shares. And barring a recession they will continue to do so.

[so says Reitmeister after the market has rebounded near the highs]

[8/15/12] I'm Not So Bearish Anymore [now that the market is higher...]

Tuesday investors discovered that the GDP of the European Union nations came in at -0.2% for the second quarter. And this was worse than the stagnant 0.0% showing for the previous quarter.

So stocks tumbled right?

Nope. They went higher in Europe and breakeven in the states.

Say what???

You heard right. Stocks easily shrugged off the European recession signal because their anemic results were better than the scarier -0.3% drop predicted by economists. (And much better than the severe predictions held by many experts).

Now consider that US Retail Sales strongly bounced back after a 3 month slump. Combine that with other recent, modest improvements to jobs, housing, construction, and ISM Services and its starts to paint the picture that, indeed, this was just a soft patch and the Muddle Through economy stays on track.

Yes, dear friend. I have peeled off some of the bear suit and now back to a more neutral to semi-bullish stance.

[8/6/12] Stocks bolted higher on Friday given solid showings from ISM Services and on the jobs front. However at just 2% off the old highs I would say there is absolutely no discount in place for all the concerns still in our midst (slowing economy, European debt, emerging market growth decline, fiscal cliff, unsettled election... need I go on???).

So forgive me for not jumping on this rally. Because unless memory fails me the same thing happened the previous Friday followed by a 4 day sell off.

What I see is greater odds of range-bound activity until investors are more certain of how all these problems shake out (soft patch vs. recession ahead). I suspect 1400 is the top of the range. Maybe we could see a push up to 1420 getting all the bears sucked in before faltering. The lower end of the range is framed by the 200 day average at 1320.

Given this scenario I am in no rush to buy in so close to 1400. Given another pullback lower in the range, PLUS still unclear whether soft patch vs. recession ahead, then I will pick up some more longs to ride up higher in the range. However, if the odds of recession increase then I will up the ante on my shorts expected to see the underside of the range... and then some. 
[7/26/12] Investors did their best to forget about the surprising Apple disappointment. That was easier to do with an array of "seemingly" strong earnings beats from Caterpillar and Boeing. 

Why do you say "seemingly", Reity?

Let's take CAT for example. Shares were down 30% from the recent highs of $116.95 because of fears of a global slowdown. Lo and behold, they crush earnings with a huge positive surprise. The CEO even got on his soapbox to say that global growth was looking better in the future. (Note he is the only person on record with that view ;-)

Yet even with such low expectations going into the report, coupled with a big beat, shares could only muster a meager +1.4% (in fact they were in the red for a good part of the day).

This means that your average investor is not buying the global growth story. And that is why they are writing off most of the recent earnings beats as statements of the past... not of things to come.

At a minimum the 200 day moving average at 1315 needs to be tested again. And probably so does the psychologically important support level at 1300.

[And the Dow is promptly up 200+ in the morning..]

[7/16/12] Who is the numbskull at Zacks who said things are looking more bearish? 

Oh yeah... that was me ;-)

Yes, stocks soared higher on Friday thanks to a slowing Chinese economy that almost guarantees a strong stimulus response from their government. Yet, I don't see how that changes the picture for Europe, Fiscal Cliff, unsettled Presidential Election or the poor earnings season taking place now.

Remember that my newfound bearishness was not meant to be a perfect timing call. Rather it was that the scales of my fundamental analysis tipped towards a more negative outcome for the economy and the stock market.

This awakening just took place for me and I had to act upon it. Unfortunately it may take other investors longer to come to this same conclusion. The exact timing of which is the great mystery. Yet the odds are very high that it will unfold in the downward direction when other investors do the same cumulative math about the many negative factors weighing against us.

[7/13/12] The market came roaring down early on Thursday even after a better than expected jobless claims report. Could my splash announcement about becoming increasingly bearish cause such a tidal wave???

Not likely. Granted this newsletter reaches nearly 800,000 of my best friends every day. But I do not YET have such universal pull on the market (still working on that ;-)

So what was the primary cause? And why did it bounce back so hard?

The only logical answer is that bulls and bears are fairly evenly balanced at this time. And stocks are getting tossed around as they wrestle for supremacy.

For me, the odds of downside are increasing as problems mount: Europe debt & growth issues, Emerging Market growth concerns, the Fiscal Cliff, unsettled Presidential election and an early earnings season stinking from whiffs of a global slowdown.

I am now 20% net short the market with a portfolio of my favorite longs and inverse ETFs. You may want to seek similar cover if this more bearish argument resonates with you.

[Then the Dow promptly shoots up 200 points.]

[7/12/12] I have been long term bullish while short term bearish/moderate for the last few months. That dose of caution was well founded and led to some profitable defensive trading. Unfortunately I see the landscape getting rockier with greater odds of long term downside. 

No, this is not a recession call. Or a bear market call. This is a statement that the odds of future upside are now diminished which increases the odds of downside.

Why?

This math equation should put it in perspective.

Current Muddle Through Economy + Future European recession + Slowing Emerging Market Growth + Fiscal Cliff in 2013 = Stall Speed for the economy (0% growth).

The problem is that investors don't believe that stall speed is a long term phenomenon... and they may be right. Instead, they believe it is simply the rest stop you reach before arriving at a recession. So as this economy decelerates, most investors will assume the worst case scenario (recession) until proven otherwise.

Now toss in an unclear Presidential Election and you have all the makings of a sideways to negative stock environment.
[7/2/12] There is not a single person on the planet who will say that we can stop worrying about Europe. It's not sown up by any stretch of the imagination. 

So why did the market explode higher on Friday?

Because there are strong signs of progress. Simply, expectations were very low for what would emerge from the European Summit. Yet amazingly they did put forward a plan that was far reaching enough to show that that they get the gravity of the current situation and will likely take the next steps to contain this mess. If true, then stocks have seen bottom and will be pushing towards the recent highs of 1420 before long.

The bears have a good case too. They will say that putting out a far reaching, but partially ambiguous plan, is easy. The real trick is getting 17 nations to agree to it AND implement it with no hiccups. Any fumbling of the execution going forward will lead to an instant and painful correction. And many bears believe that "All the Kings horses and all the Kings men couldn't put the Eurozone back together again".

All those claiming they are 100% sure of the outcome are 100% full of it!

The best each of us can do is weigh the odds and implement an investment strategy that is in sync with the likely outcomes. In the long run I believe there is a 85-90%+ chance that Europe contains their debt problems. But in the short run it is more like 50-60% odds that they can do it without any serious fumbles.

Because of that I believe that being 50-60% long stocks is the right call. It allows you to join in if the breakout continues to unfold. Plus your neck is not so far out as to get chopped off if the Europeans start to botch things up for a while.

Each of you needs to conduct your own weighing of the odds. And then make sure that your portfolios match that sentiment.

[6/25/12] Stocks broke under the 200 day moving average at the start of June. Then bounced higher. 

And last week they tried to breakout above the 50 day moving average. That failed too.

Result = range bound market between 200 day moving average at 1295 and 50 day at 1346.

Yes, that is a tight range. However, until there is a clear catalyst then it will be hard for stocks to breakout for good in either direction.

[6/15/12] The market rising on the potential for more Quantitative Easing {QE} is kind of scary.

Yes, normally you don't fight the Fed. Meaning that the more accommodation they provide, the merrier for the economy and stock market.

Yet when US bond rates are already at historic lows, then they don't have much more ammo to work with. So let's hope they don't feel the need for more QE. Because after the initial buzz wears off, then more investors may read it as a serious red flag about what lies ahead.

The solution is simple. World leaders need to solve the problems in Europe. Once done, then the US economy will stay on its Muddle Through course and stocks will go higher. Because if Europe implodes, then we are all up the creek without a paddle.

Given that the solution for Europe is perhaps off in the distance, that is why I added more shorts to my portfolio today as I think the odds are greater of more downside in the near term.

I know there are some long term investors out there who may be wondering why I keep discussing every little turn in the market. That's because our primary focus here at Zacks is on the short run. And that's because we have the best stock rating system available, the Zacks Rank, which happens to be focused on a 1 to 3 month time horizon. So I think it is best for the commentary to match the primary use of our rating system.

Just as a reminder to the long term investors. I still believe that the problems in Europe will be contained at some point leading to a continuation of the 3 year bull rally. What happens between now and then is the greater mystery... with odds pointing towards more short term weakness.

[6/11/12] Yes, in the long run I am still bullish on the US economy and stock market. However, I just am having a hard time giving merit to the rally this past week. It just seems to me that one pass at the 200 day moving average is not enough. An important level like that needs to be given a more thorough test.

Plus, here are 3 fundamental reasons to call the recent rise into question:

1) Key European bond rates continue to move higher. Friday saw Spain go up to 6.22% and Italy up to 5.77% (a little too close to 6% for my comfort).

2) Oil, copper and other key commodities on the decline. The movement of their prices usually coincides with investor sentiment about the global economy. So the further drop of commodity prices on Friday does not correlate well with the “risk on” nature of a rising stock market.

3) US Bond rates went down again. This is a flight to safety move which is antithetical to a rise in stocks.

These 3 things don't add up to an environment that is conducive to higher stock prices because they all speak of fears of a global slowdown. And a flight to safety. So rising stock prices are not a logical extension. And that is why I am not clamoring to get more long the market even as stock prices had another positive session.
[6/7/12] Wednesday capped a second straight day of substantial gains for stocks as they leapt above the 200 day moving average and 1300 in a single bound. So the question that must be asked now...

Is bottom in or is this a sucker's rally?

I strongly contend that this is a sucker's rally. Simply there are no concrete plans in Europe to calm investors' nerves as of yet. This fear can more clearly be seen with the bond rates in Spain and Italy still at alarmingly elevated levels.

The recent lows of around 1266 on the S&P need to be tested again. And likely they will with Greek elections and the European Summit still looming later this month.

[6/4/12] Friday's -2.46% slashing of the S&P cannot be blamed on the Europeans this time around. This was a home grown problem. Specifically it was the May Employment Situation report which came in 54% light of estimates. And lower than last month. And had negative revisions for the past two months.

This event had us flirting with the 200 day moving average all day long. In the final hours, shares closed a notch below at 1278. So far this correction has nearly erased all of the 13% gains we had in our clutches earlier this year.

None of this should be a surprise to you if you are a regular reader of this commentary. And hopefully you added some shorts to your portfolio to be generating some trading profits at this time.

Is it time to buy this dip?

Yes and No. Looking out the next 6-12 months I see the market as being higher than it is now. In fact, I would bet that it will be above the previous high of 1420 a year from now.

But in the short run it's a bad environment with 50/50 odds of breaking out below the 200 day moving average of 1284. And if so, that could create another 5-10% of downside before we discover the errors of our ways (like we did last Fall).

So I am not buying this current dip now. Yet I do have a watch list of great stocks I'd like to buy when the timing feels better than it does now. Likely as we get more clarity out of Europe later this month. And when we can get some better economic data in the US to counteract the damage done by Friday's employment report.

[5/15/12] The equation for what is happening now is fairly straight forward.

Big market rally + no fresh economic data + new European debt concerns = Correction

We saw this freight training coming for a while. That's why we prodded you to get more defensive in your portfolios. Hopefully your shorts and inverse ETF positions are showing some nice profits at this time.

The key question now is this: Where is the stock freight train headed?

I believe we are going to hit 1300 for sure. Probably see a little support there. But time and time again the market finds its way back to the 200 day moving average. That is a notch lower at 1277. From there it is a bit more of a mystery to me.

If European problems keep escalating + US economic data softens = stocks head even lower.

If European situation improves + US economic data stays solid = rebound.

At this time I am not giving up the long term stance that we will hit 1500 this year. However, I am open to the possibility that the European situation may be worse this time around and that US stocks will suffer as a consequence. For now, the above lays out the game plan.

[5/10/12] Yesterday I talked about the "good sign" that investors kept buying on every dip. However, today I see it differently. And that's because the situation in Europe has gotten worse.

The Greek government is in shambles. And likely whatever political coalition emerges from that rubble will try and renegotiate their debt deal with the Eurozone. I believe that Germany and others may very well not agree to such a deal, potentially leading to Greece being ousted from the 17 member group.

This is a new wave of uncertainty for the Europe that once again saw key bond rates soaring. Most notably Spain is up above the 6% level once again. This sent another wave of fear into the US markets which now puts stocks under key support levels.

This reminds me of a fighter on the ropes. There is always great excitement when they punch their way back from the brink. But usually a fighter on the ropes is at a disadvantage that if it lasts too long it usually ends up in defeat.

Meaning that I suspect that the previous level of support around 1360 has been breached. So now we are likely on a collision course with a new support around 1300 or perhaps 1280 where the 200 day moving average resides.

You may want to adjust your portfolios accordingly.

[4/9/12] Mr. Reitmeister returns to Washington. [Didn't know Reitmeister was such a big shot.]

[3/30/12] Why was the S&P in the red for the 3rd straight day? It started back in Europe, once again, because key bond rates were on the rise. This led to profit taking in stocks with most of their markets down 1-2%.

Interestingly each of these three days saw a late session rally dramatically trimming losses. So like I said in the past, this is a sign that the market still has an upward bias because every dip is an opportunity to buy into this rally.

Next week offers plenty of meaty economic reports that could move stocks like both ISM reports and monthly employment numbers. If good, it could give us one final surge before earnings season.

I would say 60% odds of that happening. And 35% odds of going sideways into earnings. That leaves a paltry 5% chance of a correction at this time.

[3/1/12] The +8.7% gain for the S&P to date makes it the best two month start since 1991. However, we had an impressive start to 2011 as well. Next thing you know the market is in the tank and we were lucky to crawl back to a breakeven finish.

Why might this year be different... you ask?

GDP is picking up speed. The Q4 revision up to +3% certainly helps. The Fed acknowledged such gains in their Beige Book report. Also today's Chicago PMI was surprisingly strong with forward looking indicators screaming of greater gains ahead.

Then consider that a year ago the 10 year Treasury was at 3.4% and now it is still under 2%. With another year of earnings growth under their belts it makes US stocks that much more attractive (especially when you add the nearly 2% dividend for the S&P 500 into the return equation).

The short term fluctuations of the market will always be a mystery. However, there is strong reason to believe we have not yet reached the top for this year. Being so close to 1400, it's pretty much a given we can make it that far. However, I will stick my neck out and say that 1500 is closer to the high in 2012 than 1400.

[2/24/12] Kevin Cook here, watching the sleeping bull for one more day until Steve returns. I think he went to the White House again to talk some sense into the President about this dividend idea.

One of my favorite bull market environments - besides over-emotional corrections [2010] and unwarranted recession panics [2011] - is the slow grind higher that everyone doubts can keep going. Today's market looks a lot like parts of 2006, 2009, and 2010 where the ground game ruled. In other words, the market fights for every first down with a low-key running game that averages 3 yards per carry.

This is because lots of portfolio managers are UNDER-INVESTED and why we don't get even a 3% pullback to buy, let alone a 5% one. They are not rotating out of stocks up here at S&P 1,360. They are building positions for the next leg higher, afraid to be left behind. And there is just enough doubt and money on the sidelines to keep this going, oh, until May.

Steve has talked about this before in terms of the market that doesn't seem like it's rallying, but when you take a look every few weeks you notice your portfolio is up 1-2% more than it was last time. And I frame it as a market that fights with disbelief more than a wall of worry. I explain it in more detail in my reply to today's Real-Time Insight, "The S&P 500 Looks Cheap."

Think of it this way: If lots of investors and PMs are holding extra cash, waiting for the correction that never comes, what happens when the S&P hits 1,400? That money will start to move in, sort of like an "upside capitulation." However this unfolds, it will be extremely fun to watch. Especially if you have good positions now and profits to take later.

[2/17/12] Once again, those who doubt this rally continue to get punished as 2 of the 3 major US stock indices made new closing highs Thursday. And the S&P 500 is on the doorstep of joining them at record heights.

What caused this new surge? Signs that a Greek bailout deal is moving ahead. Plus a trifecta of good economic news on the home front:

• Jobless Claims now down to 348K. Much better than expected.
• Housing Starts 699K vs. 675K expectation. Plus previous month revised 32K higher.
• Philly Fed Survey shows a surge in regional activity nicely topping estimates.

I think it's fair to assume that the S&P will touch their highs at 1370 in the not too distant future. But then what???

Here is what I said on that subject a few days back which still holds true today:

"I believe the market will keep pushing higher to 1400 before we have any correction worth talking about (greater than 3%). This is probably a 6 to 8 week process of slowly trudging our way up to that point.

The biggest battle will be when we hit the old highs at 1370. That hurdle may take a couple weeks to clear. Once above, we should be able to make new highs around 1400. At that point a correction of 5-10% is likely to test investor convictions before making an assault on new highs."

[1/27/12] Quite often the immediate reaction of day traders is mitigated the next day after longer term investors had a chance to contemplate what things really mean. Such is the case with the market turnaround on Thursday.

Upon further inspection I suspect that many long term investors said to themselves: "The only reason we need such severe Fed action is if they are truly concerned about the health of the economy". That is the backlash we were seeing on Thursday even with quality showings from the Durable Goods and Jobless Claims.

This fits in with my call for the market to take a pause at this time and digest some of the recent gains. We may even find ourselves retracing a few percentage points down to the 200 day moving average at 1253 on the S&P. After this consolidation period I suspect stocks will get back on the offensive as we have not yet seen the highs for 2012.

[1/26/12] End of America

Kiss America Goodbye?

European Crisis Can Still Cripple US

Is Europe Throwing Us into a 1930's Moment?

How the US Debt Downgrade Will Change Your Life

Confusing Gradual Bankruptcy with Economic Recovery

Up to 308,127,404 Americans Could Be in Serious Trouble

This is just a sample of the commentary headlines and marketing messages from around the investment world this morning. And it's the same basic formula these folks have been pitching since the Great Recession started in 2008. As they say "fear sells".

The problem is that fear doesn't always produce the best results for your investment portfolio. That's because the economy and stock market started rebounding back in March 2009. Since then the S&P 500 has basically doubled.

Those following the ill-advised fear based messages have not enjoyed any of the benefit of the very real economic recovery and rise of stock prices. Unfortunately those peddling the fear did benefit by getting you to buy more of their subscription services.

[1/9/12] This is a classic Wall Street saying. And gladly there is some decent data to back it up.

According to the Stock Trader's Almanac the last 37 times that stocks went up the first 5 days of the New Year has resulted in full year gains 31 times. That is an astonishing 84% accuracy rate with an average annual gain of +13.3% across all 37 years. I would certainly take an average result for 2012... how about you?

I'm guessing that many of you are still a bit unsure about the market moving higher. All the talk of Europe, China, Debt etc. is unsettling. And I don't want to diminish it at all as they could jump up to bite us in the posterior. However, I think the odds are better on the 2.5 year Muddle Through economy extending into 2012. And the economic data supports that notion at this time... maybe even a notch better than that. This is what is driving stocks higher.

When that primary positive trend becomes in greater question we will likely see the signs and recommend that you get more defensive. For now, appreciate that the US economy is doing well. And that US stocks beat the heck out of any other investment alternative. That is why I am back in the bullish camp once again. I hope you entertain that notion as well before the market gets too much higher.

[1/6/12] Stocks broke above their 200 day moving average with conviction on Tuesday.

On Wednesday they gave back a little early in the session before rallying into a breakeven close...and the 2nd close above the 200 day.

Thursday is a near repeat of Wednesdays action with heavy selling early on followed by a massive rally into slightly positive territory. That makes 3 in breakout territory.

That's the technical picture. On the fundamental front take your pick of:

ISM Manufacturing showing expansion
ISM Services showing expansion
ADP showing a WHOPPING 325K jobs added in December
Jobless claims under 400K again and again.
Q4 GDP estimates of 3.5 to 4% are quite common
Less negative headlines out of Europe (or at least we are becoming immune to them)
Improvement in Chinese economic #s (they ain't dead yet)
All of the above

I will go on record as a firm believer in this breakout for stocks. The speed and final destination are a mystery, but up is the direction for now.

I expect the US economy to continue to Muddle Through and that is good enough for corporate earnings growth. Right now earnings projections for the S&P 500 next year are around $106 per share. That means the market is only trading at a paltry PE of 12. Well below the historical norms of 14-15.

As people worry less about Europe and China then it will create a tractor beam pull towards stocks. I can easily see the market getting to 1400 on the S&P 500 which equates to a PE of just 13.2.

I think the groups that will do the best in 2012 are the ones that did the worst in 2011. And those are cyclical and growth oriented groups that got pounded down when the recession fears took hold. This also means that the defensive positions that served us well in 2011 will underperform if people become less risk adverse as they are now.

[1/5/12] Stocks corrected early on Wednesday morning, yet rallied back into the close. This makes a 2nd straight day above the 200 day moving average. Thursday scoring above that mark would seem to confirm the breakout for stocks.

Gladly there is more than just a technical story here. There is growing belief in European debt containment. Their recent bond sales and stock market gains are testament to this understanding. Plus there are signs that predicting China's demise is a bit premature.

And back in the States we have a slew of economic reports touting an improving economy. The latest projection I saw for Q4 GDP is +3.4%. Wouldn’t that be nice!

[12/30/11] Reitmeister's 2012 Outlook & Strategy

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