Where are we? We're at the top end of a trading range. What can move stocks up or down?
Three big movers are Europe, U.S., China.
1) Europe: a "final plan" isn't going to happen tomorrow; is "just muddling toward a solution" good enough? There's already reports out of the FT that there may not be a specific number attached to the size of the Greek haircut, or how much the EFSFmay be leveraged. That means that the only issue settled is the size of the bank recapitalization, about 100 billion, and even here, banks are pushing back.
2) China:inflationisn't an issue, but growth is. Can they keep it going? A lot less talk about tightening monetary policy, more talk about helping people get loans and stabilizing real estate. GDP at 9.3 percent last quarter, a bit lighter than previous quarters but still strong.
I'd say the jury was still out on this one.
3) U.S.: economic data choppy, recession unlikely, but corporate guidance looks weaker than normal. I want to see more corporate guidance, but it's now likely we will see low-growth with little job pickup.
What's this all mean? At 1100 on the S&P 500, a buy, but at 1250...caution. Stocks are arguably fairly priced to slightly overpriced in this environment.
There's one other player that traders keep pointing out to me, a "fourth factor": the greed trade.
Traders have had a miserable second half, many are underperforming. Many were too short when they should have been long, and vice versa. They are desperate to make their numbers. This drives higher risk taking. It could be a major reason the market is holding up so well.
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