Recognition of the woes of the economy and earnings appear to be fully realized hence the extreme readings in investor sentiment. The 1120 area of the S&P 500 appears for now to a relatively solid floor and its becoming hard to be as bearish as we have been going forward. During periods of market selling down in the 1130 area we’re seeing a dissipation of selling and a reduction in the number of stocks marking new lows. While we will look for market weakness to cut back on our hedges we are starting to build bullish equity positions for the end of the year time period.
Gold and Silver need a period of price consolidation. The frenzy in Gold is a likely sign of a near term top in prices and a consolidation would be normal lasting for a few months.
This current period is beginning to resemble the October and November 2008 time period where stocks started to bottom out even while earnings continued to deteriorate. While the major rally didn’t occur until March ’09 there was a two month window where stocks rallied sharply into January ’09, I think we could see something similar to that.
There are rumors of a major asset allocation switch from bonds to stocks in U.S. corporate pensions. Given the low yields on bonds and low valuations and high dividends on equities there is a good chance this rumor has some validity.
Long GLD, SLV