Tuesday, October 16, 2012

Flat top

My last post was more than a month ago, when the S&P 500 index had just crossed above 1450.  Today the S&P 500 index has just crossed above ... 1450 again.

On the bright side, neither bears, bulls, nor cash sitters (like me) have lost anything over the past 5 weeks.  On the down side, this low volatility combined with other bearish indicators sure smells like a market top to me.

The prevailing wisdom seems to be that the market is poised to rally strongly if Mitt Romney wins the election 3 weeks from now.  I agree that certain economic conditions would improve when business owners finally felt safe to hire people and spend capital again, but I'm not convinced that it would translate to an across-the-board economic turnaround or an immediate stock market rally.  Even in the best case (from my perspective) government spending will have to be cut sharply just to balance the budget and eliminate the $1.5 Trillion yearly deficit, let alone pay down the $16 Trillion debt.  That reduction in federal spending, while highly beneficial in the long run, would lead to short-term pain in certain sectors that were inflated by the irresponsible deficit spending.