STOCK MARKET UPDATE

Updated following  each market day

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Market Outlook

The popular averages closed mixed on Friday. On Thursday Wall Street pundits expressed concern about continued dismal housing data, but on Friday they became encouraged by the president’s plan to prevent some foreclosures. Six years ago I warned you that the housing bubble would soon burst and have a long term negative effect on the economy. Readers laughed. Many were part of a herd that assumed real estate prices always rise due to some mysterious natural law. They were ignoring the life cycle of baby boomers and its long-term effect on home prices. Predictably the boomers started becoming empty nesters. Once Europe’s financial  troubles spread to this pathetically slowly growing domestic economy, there may be no refuge.

  Above is my three-month chart of the S&P 500 exchange traded fund (SPY).  Late in October the price flirted with the 200-day moving average. Then at the turn into November it plunged well under. During late 2011 it made several more attempts to crack through but was rebuffed every time. In mid-November the 50-day MA gave way, but the level was regained and easily surpassed by that month’s end. A mid-December fade found dip buyers. A decent Santa Claus rally ensued as Wall Street gave customers the all-clear signal, and that continued into the New Year.

  Wall Street appears to have been rounding up the last of those frustrated fixed income investors with stories about a supposedly improving economy, and placing them on the same side of the market with everyone else. Fearful European investors seem to have been pouring their money here too. Soon few will be left to buy at higher prices. In my book I reminded readers what happens when everyone huddles together on the same side of the boat. Unlike in the natural world, herding is an unsafe strategy for investors.

DISCLAIMER: Our commentaries are provided as general information and not investment recommendations. You are responsible for your own investment decisions. Our opinions are based on historical research and data believed to be reliable. There is no guarantee that results will be profitable. We are not responsible for errors or omissions. We may hold positions in vehicles that are mentioned.

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