The same folks that were screaming that the sky was falling a few months ago and we should sell our stocks are now telling us that things look better and the economy may be recovering. Oh really? They were wrong then and they're still wrong. The sky wasn't falling a few months ago when we turned bullish and started buying long positions. The market has since rallied tremendously and now they want us to start buying stocks. That's just wrong. Now is the time to take profits where you have them and wait for pullbacks while all those fund managers are forced to chase the S&P during some of the slowest months of the trading year.
Has anything really changed in the last couple of months? Not really. Corporate earnings came in better than expected and proved that the sky wasn't falling, but all those other pesky economic issues are still here today. The economists are telling us that Inflation is "contained". It is as long as you don't eat and keep your car in the garage. Those economic stimulus checks from the government will start arriving this month. Investors are hoping that people receiving these checks will go out and spend, spend, spend. What's more likely to happen is that the money will be used to fill up gas tanks and buy groceries. Not exactly the stimulus Wall St. is looking for. Housing is still trying to work through record inventory levels and the US dollar is still falling making commodities such as oil more expensive. Wall Street got somewhat excited last week when home construction showed signs of life, but a closer look revealed that the pickup is only in construction of apartments that will most likely hold all those people unfortunate enough to lose their homes.
Technically the market is very overbought. We continue to believe that profit taking and caution is the appropriate strategy for the next few weeks especially since earnings season is pretty much over and the summer doldrums are just around the corner.