The Market Is Floating Right In The Middle Of The Value Goalposts

I don’t usually like to talk about trading (everyone else does that), but I thought I’d chime in on how I view our current levels.

As I wrote in my January 2nd piece outlining my 2011 playbook, my estimate for S&P 500 EPS FY 2011 is $89, and fair value between 13x (1,157) – 16x (1,424).

That leaves us with a reasonable amount of room on both sides.  I tend to try to trade opposite strong sentiment, but the past few months have been an exception.  Predicting stronger than expected economic (and earnings growth), I saw shorter-term cash forced long under on onslaught of beats, buybacks and inflows.


My favourite barometer of the economy is Initial Claims – and I’m sure you can see the relationship they hold with equities.  As long as they keep declining and fund flows chase performance, I think we continue to march higher.

The danger, of course, is the proclivity of a shake-out of overly-exposed short-term traders who are looking for excuses to bail.  I haven’t anecdotally witnessed much enthusiasm in the economic recovery in professional speculators.  Their cynicism has set them up for near continual surprise, and those unrealised gains really must have been burning a hole in their sell button…


This post previously appeared at Macrofugue >

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