Cracks in the Wall

Strategic Asset Allocation Report

S&P 500            1838
Rut 2k               1168
1 yr. Bills           0.13
10 yr. T-Bond   2.82

Market sentiment: bearish

As the usual market pundits chime in unison that” it is a bull market until it isn’t”, cracks in the wall are beginning to appear. As the cheery, bullish cacophony rises, behind-the-scenes, margin debt is rising to near 2007 pre-crash record levels. Cheap valuations no longer provide support. In turn, the Fed is starting a program of tighter money amid extreme bullish sentiment while insider selling explodes to near cyclical highs.
The momentum market’s lifeblood is higher growth expectations- tapering seem destined to throw cold water on those that hold them. While we remain bullish, we know that our DCF model projects 9% total return from these levels and the S&P 500. If we use a equity discount risk premium of 9%, the market has 0% upside from today’s level.

Market sentiment is negative. Bulls out number bears by 1.7 which is a very negative sign. The VIX at t 12.5 demonstrates a boatload of complacency. Other sentiment indicators such as the Consensus Index and Market Vane confirm this over zealousness. In addition, Short interest has also moderated nearly 10% from last month; although much of that is due tax deferred selling to delay taxes to 2014.

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