The market continues to power ahead with significant momentum. The Dow 30 Industrials, the Dow 20 Transports, the S & P 500 and the NASDAQ 100 all are taking wind from a new quantitative easing policy, extended Bush tax breaks and positive earnings guidance. In addition Wall Street likes the idea that Democrats and Republicans must work together and compromise following the mid-term Congressional elections.
There is of course another factor influencing the positive trend. Given that current interest rates are near zero the only way bond rates can go is up. Rising rates will herald an end to the extended bond market rally we have witnessed over the past years. Smart hedge managers are reading the change and are moving ahead of more cautious mutual fund players. Should this capital re-allocation strategy become more pronounced, good times could finally arrive to beleaguered equity managers. Remember the stock market has ambled range bound since 2001. It is thus well in line for major price movement particularly when you factor in the inflation multiples which will eventually kick in to common price levels as a result of quantitative easing dollars moving out from financial balance sheets and into the broader economy.
Since September commodity ETF’s have done fabulously well. Silver (SLV) is up 36%, Gold (GLD) has gained 10% and the emerging markets ETF (EDC) has advanced 70%. I reckon those investors who are out of the market may find it difficult to find a safe entry point until the earnings season in early 2011. But traders should not be disheartened. The market eventually always retrenches. I am a great believer in waiting for a technically sound purchasing position. Patience will always outlast recklessness. In other words never chase “Mr. Market.” For those who are looking for an investment “target” that has not run too far from a conservative technical range I recommend looking at oil. This commodity is way off the peak of 2008 and should run up in price fairly quickly as soon as the broader bull story starts to consolidate.
Observing price action broadly across the market-place the message I am getting is that the worst is over, short term, and that the bull trend is growing in energy and power. Extended and compressed high stochastics are a feature of bull markets and that is what we are experiencing. The final leg to the “Bull” stool would be for the bottom to be finally set for the Real Estate market. My property contacts in Florida tell me this may not happen too soon given the complexity of the crisis but the current “mixed” real estate story has a silver lining. The FED will not raise interest rates aggressively until bank balance sheets have stable “mark-to-market” property valuations. When that happens stock market advances will begin to be tempered by rising interest rate trends, but we are not there yet. Thus as long as monetary policy continues to be accommodative I see no reason why Wall Street will not enjoy a traditional “happy” festive season and a New Year that beckons “new hope” and higher prices. Thus the traders mantra will not be “buy low and sell high” but “buy high and sell higher.” The wall of worry has arrived. The easy money has been made.
ETF: USO. Weekly
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ETF: GLD. Weekly
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ETF: SLV. Weekly
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