Stock rally continues, S&P at highest level since Jan 12th

The stock market made it to almost the highest level of the year today. In the S&P 500 you’d have to go back prior to January 12th to find a higher price. So the market is at the highest level since Obama took office. Despite the still bad news, with the likelihood of another round of bad news, the stock market feels like hope and yes we can. We have a weak president who’s main talent is skillfully reading a teleprompter, and who’s strings are being pulled by an ex-ballet dancer. We have a soon to be filibuster-proof senate enable by an ex-comedian who has no business being in such a powerful position. We have a news media giving Obama a pass on every issue. We have a population that seems ready and willing to embrace socialism without regard to the consequences. We have debt growing and compounding at unsustainable rates, and those that criticize are labeled dumb rednecks and racists by the Hollywood elite and news media. Yet the stock marketseems just fine with all of this.

The stock market is a discounting mechanism. It looks into the future and casts its vote. Of course the stock market is just a bunch of traders and investors, and those groups can certainly be wrong. Beginning books on the stock market always tout the message that the stock market is never wrong. I submit that it is wrong most of the time. That’s what creates opportunity. How can a stock be $3 per share and then a couple weeks later be $9 per share when nothing regarding the company earnings has changed? If the market is always right then both those prices would be correct. Obviously they are not. Markets are constantly trying to seek a level that represents value, but in the process of exploration prices travels to all sorts of price levels that are not representing true value. Perhaps it’s a good idea to stand back and look at the larger picture. It’s an old cliche that you can’t see the forest if you’re in the middle of a bunch of trees. Maybe that’s not an exact quote, but that’s the gist of it. The daily chart certainly looks impressive when viewed over the near term. The the following monthly chart of the S&P etf shows some perspective.

The monthly chart, although of not much use in short-term timing, can at least give some perspective. It can become a compass when one is looking at the random gyrations on the daily charts. You can see that the rally of the last couple of months looks like a rather small bounce. The trend has been clearly down for some time. The rally so far has been able to take the momentum indicator in the lower sub-graph out of deeply oversold territory. There could easily be more of a two sided market in the period ahead. If another round of negative news hits the downtrend could stick around a while longer. There was much money on the sidelines and sentiment probably too negative. That condition seems to be normalizing. The money coming in off the sidelines could retreat at the first sign of hope possibly being a mirage. But at the moment there is little technical indication of a top to this current rally, as has been the case over the last several posts on this blog. The daily chart still shows an uptrend. As long as that uptrend exists I’ll trade pullbacks on the long side, but with the finger close to the exit button as my intermediate and longer view is that this is still a bear market rally.

8 thoughts on “Stock rally continues, S&P at highest level since Jan 12th

  1. It’s taken me many years to learn that “the market” is only the opinion of a large number of people at that moment in time. The big variable in stock prices is not earnings but rather the multiple that is placed on those earnings and that is purely a subjective measure at the mercy of changes in mass psychology. A stock trading at $3 this month is just as “correct” as at $9 next month on the same earnings. The stock didn’t change; the crowd’s appetite for those earnings did. This is why price targets on stocks are so useless. Analysts are very good at estimating earnings and that is how they are rated. The problem is that giving a price target requires putting a multiple on those earnings and that is futile since there is no way to know what the crowd will be willing to pay next month, let alone in six or twelve months.

  2. Hi Doug, your insight is awesome. Just discovered your blog and have bookmarked it for good. I have been interested in mapping the Baltic dry Index for a while now. I too try and transpose it manually on to the Dow from time to time to see how much of an indicator it really is at any point in time. Any thoughts now about BDI, given the latest market sentiment indicates an uptick in the US economy?

    Thanks
    -Sri

  3. Sri, Thanks for your kind comment regarding my blog.
    The BDI has increased a bit off the lows, but when taking a longer term view it still looks like a dead cat bounce. The current rebound is pushing up against the price area from early 2006. There are many factors influencing the price such as US Dollar and oil prices, but ultimately the price can only go up with an increase in world demand, and especially demand from China. Even with the recent rebound in the BDI, it doesn’t seem like demand is on much of an upswing. It seems the US stock markets are rebounding independent of global demand for raw materials. This still seems like a bear market rally, with the BDI being one piece of the puzzle that lends support to that scenario, as it doesn’t seem to be leading the charge. This rally in the stock indexes seems similar to rallies in many past major bear markets.
    I’ll try to get a chart up on the BDI in the next few days. I haven’t posted a chart for several weeks, so overdue. Thanks, Doug

  4. I could not stand it. I shorted the Dow (again) at the close yesterday. Gold was up 10 or 12 bucks, interest rates edging down and usd/jpy SPIKING down all tell me money is coming out of stocks. Of course, with TRILLIONS of freshing printed money floating around, the normal relationships are very suspect. BUT, ultimately, BECAUSE normal relationships ARE suspect, I find it hard to have confidence in the rally. So I continue to find places to short with tight stops (last 8 trades: up about 1% ) waiting for the swoosh down. But this is bound to be a screwy day with all the data set for release.

  5. Nice (enough) profits with a trailing stop which will no doubt get hit while I am out running errands as the market turns back up

  6. C’mon guys. I can’t have my artwork being reposted with the credits sheared off the bottom.
    The Walking on Water art is mine,
    BigFurHat of iOwnTheWorld.com

    I know I am going to be portrayed as petty, but what if I took your blog posts and posted them on my site with no credit, implying that I wrote it?

  7. BigFurHat, you are right. Thanks for bringing your artwork to my attention. I found the image with your credit already cropped out, so had no way of knowing the origin of the image. But it was very funny and I had to have it on my blog. Now that I found the origin, I reposted the image with your blog link, and also put the link at the end of this post, along with a link on my links tab.

Comments are closed.