Is BIG Money Selling Into Earnings Euphoria?

George Brooks |

George Brooks Stock MarketBrooksie’s Daily Stock Market blog: An edge before the open.

Monday, May 2, 2011 8:12 am EDT

DJIA: 12,810.54
S&P 500: 1363.61
Nasdaq Comp.: 2873.54
Russell 2000: 865.29

There are a number of things Americans can do today to celebrate Osama bin Laden’s reported death, but buying stocks for that reason alone is not one of them.

For one, his death is no assurance the world will see a significant reduction in terrorism. In fact, retaliation may serve as a catalyst for increased actions going forward. I would expect an announcement of a new leader shortly.

It may justify a reduced U.S. commitment of boots-on-the-ground in the Mid-East at a time our nation is addressing its mounting deficit issue, obviously that would be a positive.

We have had the beginnings of an economic recovery and huge bull market with bin Laden living, so the market is obviously getting its marching orders from another source

Terrorism has been dealt a major setback, if only psychologically, and that is enough reason to feel very good, as well as to be grateful to our service men and women and intel operatives for their relentless pursuit of bin Laden and other Al Qaeda leaders, Unfortunately, that was not done without a price.

At the time of 9/11, I lived in a small NYC commuter town in SW Connecticut and saw first hand the pain that accompanied that attack. While vengeance may provide a sense of satisfaction, the memories of those days will now be revived and people will have to deal with it all over again.

Today: While Q1 earnings are still the force behind soaring stock prices, we will have a bin Laden premium tossed in, as well.

We are witnessing a semi-runaway market blow off, however not nearly the kind of speculative frenzy that accompanied the dot-com bubble burst in March 2000 with the S&P 500 selling at 45 times earnings.

I think we are looking at a short-term excess with the potential of some “bumpy” summer months lying in wait ahead. Indiscriminate new buying, especially in stocks that have had a big run up, is risky.

On the brighter side, the market is currently at the same level as it was five years ago, but we are not now faced with having to undo a host of abuses to our financial system and unravel excessive leverage in Wall Street and the finances of many Americans.

I still see the potential for new all-time highs this year, but not until Q4. That would be DJI 14,279.96; S&P 500: 1576.09; Nasdaq Composite: 2861.51; Russell 2000: 856.48 (Intraday). A bit of a stretch, but doable.

George Brooks
sensiblesleuth@gmail.com

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TOF Tofutti Brands Inc. n/a n/a n/a n/a

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