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.