A modest rise in the aggregates over the past week keeps the
market in overbought territory, and it is extending out past
the very short term. In a strongly rising market, there can be
shorter term overboughts that can drag on for several weeks as
more players pile in from the sidelines to get on board. This type
of situation can be very difficult to short for a quick play, and it
can be frustrating for folks who are trying to maintain discipline
and buy dips that seem to be erased quickly. But best you know
that they have started to chase them a little bit.
On the fundamental side, the SP 500 is, I believe, now fully
discounting $60 a share in 12 month earning power, and further
near term upside would imply that players are moving beyond
recognizing earnings benefits of cost cutting to the expectation of
earnings driven more by a recovery of sales volumes. This is also
worth noting, since not everyone may be ready to make that transition
in their thinking, and so you have to realize there may be some profit
takers who may decide to wait for some confirmation of this
important transition in the weeks ahead.
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