It was only just a bit more than a month ago I wrote that I thought it was time to buy stocks. Since then the Dow has run straight up about 700 points and this kind of a move tends to temper my enthusiasm some.

I wrote back then that stocks, in relation to bonds, were historically very cheap. This is still the case but if bonds continue to sell offthis could change rather quickly. Relative to their own history stocks are now approximately fairly priced or just a bit overvalued (my fair value number for the S&P 500 is 1350 vs. today’s 1435 price).

Technically, the pattern of higher highs in the S&P 500 is bullish. However, momentum seems to be waning, as evidenced by the ascending wedge (annotated) and diverging MACD (below) in the weekly chart:
In terms of sentiment, investors have yet to fully embrace the rally. To me, this gives the market some more room to run but this week’s action may have swayed more folks to the bull camp. If we get too many bulls over the next couple of weeks stocks could find it hard to find more buyers and insiders have been selling into strength for a few weeks now.
In terms of the macroeconomic picture it looks like Europe is getting its act together but that may not prevent a greater, global slowdown. We’ve seen both FedEx and Intel preannounce disappointing revenue guidance this week. These are two big bellwethers and when they talk, I listen.
All in all, I think it wise right now to heed the old adage, “nobody ever went broke taking a profit.” This is not to say I’m turning bearish, by any means – just that I’m pulling in my horns.