Let’s first review how we got here, from S&P 1,100 only 5 months ago to 3.5 year highs above 1,375…
1) Investors priced-in global recession, if not Euro-contagion
2) Shell-shocked by the daily Euro-mess news flow and slow-growth worries, many investors waited on the sidelines for the smoke to clear
3) The economy that most underestimated has been full of positive surprises
4) We have only just begun to build a wall of worry for the market to climb and portfolio managers (myself included) are itching for a pullback to buy
5) The S&P should logically take its time to get decisively through the 1,350-70 head & shoulders top of last year, but a surge to 1,400 would be just the unexpected outcome to fool the most investors
My conclusion is that it will take an unexpected event to be the catalyst to give us a 5-8% pullback. It will have to be surprising and panic-inspiring. And it will be a buying opportunity because no one will recognize it at the time.
In 2010, it was Deepwater Horizon and the “flash crash,” with a little early Euro-panic to spice things up. In 2011, it was the horrible Japanese earthquake. Then came the first half GDP of sub-1%, with a little debt-ceiling debacle for fun.
What would it take to shock this market now? Middle East military action? Seems nearly priced-in if you ask me. What else?
To read this article on Zacks.com click here.
Zacks Investment Research
