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The Market In the Eyes of Bulls and Bears

Posted by Pete Stolcers on September 10

Posted 9:30 AM ET – PRE-OPEN MARKET COMMENTS FRIDAY – I am going to keep my comments short because the same themes are in play.

Reasons to stay long:

1.Central bank money printing has pushed interest rates to historic lows and bond yields do not keep pace with inflation (negative real returns).
2.All of this money has to go somewhere and stocks are still the best alternative.
3.Corporate buybacks are reducing the supply of stock. Lower supply and higher demand means higher prices.
4.Economic numbers have been solid (although slightly below expectations).
5.The upward momentum is very strong and the dips are shallow and brief.

Reasons to be careful:

1.The forward P/E on the S&P 500 is at 21 and the last time it was this high was in 2000 before the “tech bubble”.
2.Earnings comps will be harder to beat because we were starting to rebound from Covid a year ago.
3.September is a seasonally weak month.
4.The Fed will start tapering in 2022. Europe will start sooner and S Korea raised rates a few weeks ago.
5.VIX is low and that suggests that Asset Managers are unhedged. Big drops happen when no one is expecting them.
6.Covid is hampering global growth.
7.There have been seven consecutive higher monthly closes on the S&P 500 and in the last 25 years there have not been eight.

Swing traders with a 3-4 week horizon should stay sidelined. This is a seasonally weak period and I believe risk is elevated.

Day traders should expect two-sided price action. We have seen nice drops with momentum during the day. Stay flexible. The best strategy is to wait for dips and to buy relative strength on support.

Support is at SPY $445 and $450. Resistance is at $453.
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