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A Tired Bull, Already?

The bull market is looking a little tired. Alec Young at Standard and Poor's phoned me to confirm what has been a central preoccupation of mine this week: the bull is looking a little long in the tooth.

Alec pointed out today's ADP report was very good news, but the market has reacted with indifference, selling into the modest pop at the open.

In fact, we have been getting a smaller than expected pop on several good economic numbers recently...yesterday ISM Services was better...and nothing happened.

The concern is that better than expected economic numbers are already being priced into the market.

Part of the problem, as Alec noted, is that stocks are already fairly priced by "normalized" earnings standards.

For example, at its current level of about 900, the S&P 500 is trading at 15.5 times 2009 earnings estimates, and 12.5 times 2010 earnings estimates.

15 times earnings is the historic average for a multiple on the S&P 500, so stocks are not a bargain on an historic basis.

None of this means we are in for an imminent selloff; indeed, it is quite possible we are in for months of consolidation, i.e. sideways action.

Lowry, the oldest technical analysis service, notes that two signs of the rally ending (as opposed to consolidation) are:

1) A sharp rally on massive volume--a buyers panic, where massive amounts of new money comes into the market in a very short period;

2) A sharp decline on increasing volume, with the major indexes below support levels, such as the April lows of 822 for the S&P 500.

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