FusionIQ Morning Comments - 1/18/11

WHAT TO DO, WHAT TO DO ???

"If you don’t create change, change will create you.” Mahatma Ghandi 

  

This remains the 100,000 question as there are plausible arguments for both the bulls and the bears.  The bears will argue that geopolitical risks (the PIIGS) still exist, inflation is coming on fast and bullish sentiment is running rampant.  Bulls will counter that there are more skeptics than exuberant cheerleaders, that the economy is finally gaining traction and that earnings will continue to improve.  They argue this will lower valuations even if the market climbs a bit more here.  The hard part is deciphering which opinion is correct as we can see validity in both arguments.  

 

Thus the current market environment creates a double edged sword.  In one respect if we are in the midst of a melt up it is hard not to stay exposed (invested) and fully participate.  On the other hand if we are in the last turn (about to correct) in the markets game of musical chairs, it would stink to get caught without a chair !!  If you are not worried about either of these scenarios then you’re not properly game planning for risk management.  That said the pro’s are the trends for three key bellwether indices; the Transports, the Banks and the S&P 500 remain up and intact, though this morning’s action in Citigroup (C) may cap the momentum in the banks for a while.  Additionally, and as aforementioned, the economy is finally gaining some traction on the job creation front.  The con’s are the market is very overbought, measured sentiment (not anecdotal) is a bit over bullish and inflationary pressures in basics such as food and energy are ramping up.  So how does one play this game, given the confusing but equally plausible messages being sent by the market.

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