Thursday, November 16, 2006

Why am I still slightly bearish on the Dow

The DJIA will trade over 12300 today. A few weeks ago, I called a retreat down to 11600 through early 2007. I am now revising that target to 11800.

Why am I still more bearish than the market? I think the market is obsessed with docile inflation (like the nice CPI that came out today), and also the prospects of a Fed funds cut--which are contrarian forces pushing against each other.

I am still looking more at economic growth and corporate earnings. Those are no longer growing faster than stock prices. One indicator of that: the price/earnings ratio of the S&P 500 has increased by 0.25% over the last couple of months.

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