Liquidity is only one ingredient in a bull market, and it takes time to "reverberate" through the system to end up in equities. Other ingredients, are forward prospects of the economy brightening, sentiment indicators more neutral, or even negative as they were late in September and valuations metrics more appealing. Short term, I believe a retrenchment is due because, the market is overextended, the RSI is excessive, the VIX and VXN have retreated drastically (but they have not "thoughed" thus still bullish), the recent peak was associated with excessive call buying, the momentum in the last two weeks has deteriorated (lack of expansion of volume and new highs, or lack of "leadership"), sentiment indicators "seems" to have peaked (they have not yet, but a single strong day down could cause them to peak). You may want to add to that a period of "peeannouncements", and tax selling starting early next month. Last, valuations are a good 30% or more higher, while competing bonds' rate are higher as well.
This could all be reversed, at least temporarily, if 1940 is taken out with volume in excess of about 2.5 B shares, and Naz new highs expand to the 120 or so area.
Zeev |
