Waiting for Value

Last week the S&P 500 sold off to a minor support level at 1039.  At the moment the market is kind of waiting for the other shoe to drop, one that will push the market down into the value area.  In bear markets one wants to be a buyer when P/E ratios are between 6 and 9, the current of 12 area is too high.  Underlying fundamentals will become a factor when value is reached.  Probably the biggest bullish fundamental over the next 12 months is the fact that two thirds of the Re-Investment Act Funds are yet to be invested.

Speculators and hedge funds have been the main buyers since the May highs. They will unload into the sell-off when the S&P penetrates the 1018 area.  This at the moment leaves a short-term trading area of 1056 to 1072 and a wider area of 1018 to 1072 with 1039 being the pivot point where things will get more volatile.

Bernanke’s speech last week was a good omen of future Fed policy and the disappointment of the bond market was a solid bullish long term clue.