5 Bricks for a Wall of Worry
Kevin Cook here one more day for Steve as the only snow we've seen all season in Chicago must have given him cause to extend his weekend somewhere Rocky Mountain-esque.
Need a reason to take profits in this market? I'll give you something to worry about -- actually five bricks you can build a wall of worry with:
1) First quarter GDP could be 1%
2) Oil prices rising on geopolitical tension could tilt economy toward recession
3) Bearish technical traders and hedge funds are eyeing new opportunities
4) Earnings estimates in the aggregate are flat, if not rolling over
5) Europe's recession snowballing worse than expected.
Last week, Steve gave us four reasons for continued optimism about this market. Since I am bullish for many of those reasons, I am looking for a 5% pullback to buy. And today I offer how we might get there, focusing on "bricks" #1 and #3.
On Friday, I saw award-winning economist David Rosenberg on Bloomberg talk about why this first quarter could end up looking a lot like Q1 of 2010 when the economy was creating 200,000 jobs but we still ended up with sub-1% GDP. The 2.8% number from Q4 was largely inventory re-building that we won't see again. He sees the consumer as weak, productivity and earnings falling, oil prices a threat, and the "nascent, weather-skewed" housing recovery as inconsequential with only a 2.5% contribution to overall GDP.
Also on Friday, when I asked if the market was experiencing "rotation or accumulation," I picked accumulation. Over the weekend, I saw another Bloomberg interview with famed technician Tom DeMark who says we are definitely in "rotation" mode. He sees a short term top in progress that will result in a 5.5% decline. Bring it. Many technical guys and hedge funds had their heads handed to them shorting this market. When they finally win a small victory, I'll be a buyer.
To me, we have all the right ingredients for the bulls to keep pushing up the wall of worry. Meanwhile, look for optimism to probably run to an extreme, creating new highs before the sell-off begins.
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