Market Overview: Unfortunately, most of the commentary we see about markets have been unusually ignorant, myth driven, and based on rationalizing bad decision making.

Our views:

1. Cyclical Bull, Secular Bear: The secular bear market collapse of 55% was right in line with other such debacles. The collapse was faster and more furious than typical, but the depth was normal. The snapback is also well within the range of bear market rallies — cyclical bull runs that last 6 to 24 months and range from 25% to 135%.

2. Snapback: The 75% bounce over a year seems like a lot — until you put it into the context of a six month 5000 point collapse. we call that the Armageddon trade — Dow 5000! 3000! We’re going to zero! was a spasm of panic — it has been mostly unwound the past year.

3. Correction coming (eventually): The cyclical bull tends to end with ~25% correction that lasts about a year. So we are always looking for signs that this run is over. Despite the recent turmoil, we have not found confirmation that the bull run is over — yet.

4. Liquidity: We look at many factors to help identify that inflection point: Institutional fund managers seem to be all in (only 3% cash), while Investors are at only median levels of equity exposure. Liquidity is still abundant, free money abides. Money flow for the past few months have gone into US equities — that is a new element — at about $2B per week.

5. Internals: Internals remain constructive: Market breadth and momentum are positive. New 52 week highs are also strong. Earnings are supporting some of the move, as year over year comparos are absurdly easy. The uptrend remains in place, and until it is broken we maintain an upside bias.

6. Sentiment: The biggest risk is the unusually high level of bulls. Note however that event hat has moderated over the past week. We are not at the sorts of extremes yet that make the contrarian in us scream SELL.