This blog post originally appeared on RealMoney Silver on Jan. 10 at 7:24 a.m. EST.The U.S. equity market is at an important juncture. Technicals are flashing green, but fundamentals remain solidly in the red.
TechnicalsI closed "The Edge," my RealMoney Silver trading diary, yesterday with a post on the S&P 500 10-day put/call ratio, a good indicator of the current high level of fear and negativity.
|S&P 500 10-Day Put/Call Ratio|
|Click here for larger image.|
|KBW Bank Index|
Click chart for larger image.
FundamentalsStated simply, fundamentals stink. Earnings expectations for most companies -- particularly for the financial sector (far worse than in 1998 and 2002) -- are clearly, in the fullness of time, worsening. With the current conflict between improving technicals and deteriorating fundamentals, we are at a point in time when investment decisions are quite difficult as investors are impelled to answer the following question:
To what degree has the recent stock price decline discounted a likely recession in 2008-2009 and falling/disappointing corporate profits?Unfortunately, this question is harder to answer than the riddle of the Sphinx.