Here is why I think markets are headed higher

Regarding the directions of markets, here is my theory:

1) There is excess liquidity in the markets i.e. lots of cash on the sidelines. All the cash that investors have is slowly being pumped in the stock market - likes pension funds have been waiting after the steep declines of May/June 2006.

2) Drop in home prices - Again, all the money, investors were making in the home price escalations is being directed into the stock market.

3) Drop in Energy/Oil prices - This area is no longer hitting highs every minute. Money will be rotated in other areas - (read: technology)

4) Dow components are undervalued: Even though Dow is hitting new highs, 21 of the 30 Dow components are a lot lower than their all time highs. Example, Intel is 70% lower than its all time high. Money from Energy and Homes will be coming into the high quality names.

5) Merges and acquisitions: The surge in corporate merges and buyouts (Phelps Dogde, Delta airlines, CBOT) and the premiums being offered, proves that big corporations and private equity firms think that stocks are cheap right now. Last time this happened was seen in the bull market of 1982-1987. That was interrupted only by a potential law in congress threating mergers. Needless to say, it wouldn't happen this time.

6) Historical trends: Last time we had a treasury secretary from wall street - Robert Rubin - from 1995 to 1999, the markets just took off. This time we have Mr. Henry Paulson from Goldman Sachs.

This only means one thing - the markets are headed higher in long term.