Stock Market -- Some Thoughts

Back on 9/20, in an identically titled post, I decided to take a
more cautious view of the stock market. I thought the 60%
run - up off the 3/09 low represented a tidy downpayment on
economic recovery. I pointed out that forthcoming Q 3 '09 earns.
reports would come in better than expected and that a decision
not to play in the market could prove early. Right about that.

My core fundamentals remain ok. The market is in a firm uptrend.
Looking out past the short run, the market is strongly overbought,
but, that is a hallmark of a powerful market. Even so, there are a
couple of issues that bother me, issues that might even be
antithetical in the short run. First, I believe the market has derived
much of its power from one of the strongest surges ever in the leading
economic indicators. Since the redundancy here is so mild, I think it
is fair to wonder how stocks hold up once the leading indicator spurt
moderates and flattens out for a spell as it inevitably will. So, I am
calling into question the staying power of market psychology.
Secondly, my inflation thrust indicator, which quieted some over the
summer, has started to surge again, with even natural gas joining the
petrol complex to lead the way. Oil, which is now closing in on $80 bl.,
is now high relative to what most consumers can afford without
looking again at their budgets. In short, a fast rising oil price dims
the longer term economic outlook.

Now, it may well turn out that if the leading economic indicators
moderate over the next several months, the stock market will correct
and the oil price -- nearly 32% above its 40 wk. m/a and wildly
overbought -- will drop down sharply in price. I'll happily sign up
for another long side tour in stocks if that all happens and the core
fundamentals hold up.

I am all in cash now and will likely just monitor the economic indicators
and the markets for another 3 weeks or so. But, I'll be posting even so.