This blog post originally appeared on RealMoney Silver on April 7 at 7:50 a.m. EDT.In yesterday's " column," I made the case that the odds favored some backing and filling in the U.S. stock market over the weeks ahead and that a trading strategy, not a buy/hold strategy, would work the best in the current setting. My contention that early March marked a generational bottom remains very much intact. A recycling of recent gains would be healthy and supportive of an advance, supported by my improving watch list, into the mid to late summer and to an upside objective (the 1,050 level on the S&P 500) not generally expected by the consensus.
- Bullishness building too rapidly. Sentiment surveys indicate a pickup in bullish sentiment. The McClellan oscillator is way overbought. RealMoney's Harry Schiller pointed out that the downtrend line for the S&P from the November 2008 and January 2009 highs shows resistance at 850. First-quarter earnings reports will be poor and guidance mixed to bad.
- Near-term uncertainty surrounding toxic bank auctions. The success of the Fed programs, which seek to ring-fence toxic bank assets, will not be known for a few months.
- The consumer presents a secular challenge to growth. A still-levered and tapped-out consumer could pause in its spending (after demonstrating sequential improvement in the first three months of 2009), even despite the benefits of lower interest rates and massive fiscal stimulation. This could jeopardize GDP growth forecasts, delay the domestic economy's recovery and result in even lower-than-expected corporate profits in 2009.
- Dilutive equity offerings are imminent. Capital raises (especially of a financial kind) may lie ahead as companies plug up liquidity needs. Already, the REIT industry has embarked upon an industrywide recapitalization.
- Rising interest rates. Interest rates are starting to rise, providing some competition to stocks.
- Non-market surprises always pose a threat. The always-present fear of an exogenous event.
- Heightened volatility. Volatility remains elevated.