Bears should take a step back and cool their heels, in part because foreign money is piling into the U.S. stock market and will prop it up for a while longer, according to Chris Puplava, portfolio manager at PFS Group.
In a column for the Financial Sense
website, Puplava says he sees no sign of a top in the S&P 500, as some on Wall Street have predicted since the major indexes keep hitting record highs.
"Additionally, the large net short interest levels on the New York Stock Exchange suggests a significant chance of a short covering rally that could lift the markets higher," he predicted.
Puplava says it is wise to keep track of foreign buying in U.S. stocks because historically, including in the most recent 2000 and 2007 bull market peaks, foreigners tend to buy at the tops. They also often sell at the bottom, as they did in the 2003 and 2009 bear market trough, he said.
"So what do current levels of foreign purchases suggest for U.S. stocks? They reflect more of a bottom than a top as net foreign purchases are coming off of multi-decade lows set earlier in the year and are close to moving into positive territory," he wrote.
Net foreign equity investment from Europe recently hit $16.2 billion, according to Bloomberg data. Puplava attributed that at least in part to malaise in European economic growth.
Another reason bears should be wary is the ongoing strength in corporate stock buybacks in the U.S. He cited data from Goldman Sachs showing roughly 25 percent of annual share repurchases occur in the last two months of the year.
Those stock repurchases give Puplava the conviction there is plenty of support for this market into the end of 2014.
"Another development to keep in mind is that short interest on the New York Stock Exchange is at levels that nearly match the March 2009 bottom and have eclipsed the levels that marked the 2010, 2011 and 2012 bottoms. As I've said before, the time to be bearish is when everyone is bullish — short interest levels do not convey this message at all," Puplava wrote.
"The data cautions against turning overly bearish on the markets despite the strong run off the October lows. There still remains plenty of support underneath this market to carry it higher in the weeks and months ahead."
In an interview with Yahoo
, Haverford Investment's Hank Smith dubbed the U.S. stock market a "TINA" market, meaning "there is no alternative" to stocks right now.
In Smith's view, investors can still buy U.S. stocks, even though the bull market is long in the tooth, because there is no other choice given ultra-low interest rates and the ultra-low inflation environment.
Smith noted that typically, bull markets can keep pushing ahead until the economy starts to show signs of slowing. "They die in anticipation of the next recession and really there are no signs flashing, any warnings that a recession is imminent."
Meanwhile, billionaire investor Carl Icahn said he fears a “major correction” will hit the stock market in the next three to five years.
"I am still concerned that one day you'll see a break like you had a few weeks ago," Icahn said at the Reuters Global Investment Outlook Summit in New York
, "but it won't come back."
Icahn is predicting a huge downturn. "It's really a question of when that is going to happen, in my opinion. It could be three years, it could be three months, it could be three days. But I really do believe there will be a major correction in the next three to five years, at least."
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