Archive for September, 2009
Market Update 9/17/09
The S&P punched through the 1050 area and now sits at 1065. While I would not be surprised to see a re-test of 1050, 1100 is the next short term target. The S&P has been in a well defined 100 point width uptrend channel since the March 2009 lows. The top of the channel currently sits at around 1100 and the bottom at 1000. A 6% correction from current levels would still keep the uptrend intact.
There is plenty of fuel to push this market higher.
1) Extreme skepticism – Many market gurus and retail investors are still skeptical of this rally and believe it is just another bear market rally. Apparently some market experts were caught off guard and expected the market to go much lower. Since their predictions did not come true they are attempting to justify their bearish positions. They have been announcing a crash that never materialized since last June. I received an email from a gentlemen who runs a short position advisory service. He claims the crash will come in October and if not then by December. I guess if you keep predicting the stock market will crash eventually it might and you will be proven right but as of right now the market is technically strong and there is no indication of a market crash in the near future.
2) Reduced Risk Thanks To Uncle Sam – By bailing out and taking stock positions in troubled financial and auto companies the U.S. government virtually guarantees that they are going to succeed one way or another. Thank you President Obama. Less thanks to President Bush since his administration caused the financial meltdown to happen in the first place.
3) Extreme Liquidity - The government printing presses are rolling non-stop and all that money has to go somewhere. With treasuries and money market funds paying near 0% interest rates there’s no better place to put that cash to work than in the stock market.
4) The Weakening Dollar - As the value of the dollar goes down, anything denominated in dollars goes up. This inherently makes U.S. stocks more valuable. It’s also a positive for U.S. exporters as their goods are cheaper relative to foreign currencies.
5) Trillions In Cash Still On The Sidelines - When all who have been sitting out the rally are tired of getting 1/4% on their money and seeing everyone else making huge returns in the stock market they will finally jump in.
6) Big Wall Of Worry To Climb – Will the market crash? Is another bubble forming? Will hyperinflation set in? Will the recovery not be as strong as we hoped? Will commercial real estate drag us down? Will the consumer stop spending altogether? Did the housing market really bottom? Are economic numbers out of China real? Are economic numbers out of the U.S real? Will Cramer grow hair? Will George W. Bush somehow get re-elected? When the answer to these questions are known that will be the time to sell. Therefore I am sticking to my target of S&P 1200 and there’s a good chance we will hit it by Christmas.
Gold – The bull market in gold looks like it is ready for a new major leg up due to many of the same reasons the stock market will rise. It just broke out of a large triangle formation whose projected target is $1,100. It is also breaking through the neck line of a massive inverse head and shoulders pattern whose projected target is $1,250. There is also plenty of skepticism in this rally even by various gold bugs. China, Russia and other central banks are buying up gold like crazy. China is encouraging its citizens to buy gold and they can do so at local shops. The major bullion banks like JP Mogan have enormous short positions in gold. When they are forced to cover it will cause a fast and furious rally to occur. Gold production is down and worldwide demand is increasing. Gold should find support at $1,000. as the Chinese will be buying on any pullback. The supply and demand fundamentals and chart technicals on gold look extremely strong.
