Market tidbits

My main thought today was concern. Recently the market has been gaining on news of slowing growth (due to contained inflation) and going nowhere when growth is strong. Today actually saw profit taking and people discussing the possibility of recession (with some blaming statements made by former Fed Chief Alan Greenspan about a recession this year).

Is reality setting in? Could be. If the market gets more conservative we could see a lot of rotation out of the recent hi-fliers and into staid old industrials and even bonds.

Meanwhile, unless something very bad happens to the few companies left to report, this will be the record 14th consecutive quarter for double-digit earnings growth, according to Thomson Financial. On average, companies are reporting earnings 5.4% above the consensus, above the long-term historical average of 3.3% and the 4.2% average from the previous eight quarters. A total of 67% of S&P names that have reported have pulled an upside surprise, in-line with the past eight quarters, and overall growth is clocking in at 11.2%.

If we see continued market softening in the face of such good results, it will indicate a true turn in sentiment.

Contrasting this: Bearish sentiment among small investors as measured by the AAII poll fell to 20%, lowest since Jan. 2006, according to Michael Panzner, author and trader. He wonders if they’re finally throwing in the towel, that is, plunking their last bits into equity investments. The classic thinking says the last step before a market fall is when the small investors finally give up on holding cash and go "all in" because the market just keeps climbing!

I'm certainly keeping a chunk of change on the sidelines, and I recommend you do too. Nothing hurts like holding cash while the market goes up... except holding all stocks when it goes down!

====
Blog Roll [via WSJ.COM]

Chris Perruna is concerned with what he’s been seeing in stocks lately. “The Nasdaq is currently 25% higher than it was in July 2006 and is trading in new high territory (the highest level in six years),” he writes. “Historically, markets retreat after making a 30% gain from one year to another and we must be on the lookout for a signal or a combination of signals and red flags that could lead to a correction or downtrend.”

Fund manager Tom Brown, generally no fan of Bank of America’s management, disagrees with the bank’s critics on the company’s plan to issue credit cards to illegal immigrants. “Bank of America is not — and should not be — in the business of enforcing federal immigration law. That’s the federal government’s job. BofA’s job, rather, is to do everything it can to maximize value for its shareholders within. Assuming its new card plan does that, the company should pursue it,” he writes.