STOCK MARKET UPDATE

Updated following  each market day

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Market Outlook

The popular averages popped upward on Friday in response to decent numbers in the monthly employment report. That pulled onboard some of the most hesitate investors and may draw a few more next week.

  Housing prices remain in the dumps. Until they rebound, the wider economy is going to remain essentially stuck despite occasional bouts of decent news. Six years ago when I warned that the real estate bubble would soon burst, some readers laughed at me for not knowing that real estate prices always move upward. When I asked why, they would only point to their experience, as though the phenomenon were due to some unexplainable natural law. I pointed out that it was due to the life cycle of the baby boomers who were now becoming empty nesters; the same as the outlook I described for customers when I operated a realty many years ago.

   Soon I expect the woes of Europe will spread to this country, where the economy only needs slight nudges to fall backward. The Fed realizes the potential for trouble, therefore it intends to keep a choke on interest rates for years to come. This has had  frustrated seniors moving dollars to the stock market. At the same time frustrated European investors have been buying US stocks as a safe haven. A house of cards has been built that I expect will soon tumble.

  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.

  The most financially conservative investors may have finally come onboard the stock market. Ditto for exasperated Europeans. 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. The accumulation period could end soon and be followed by distribution.

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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