Are we entering a Range Bound Stock Market? 221029

Yesterday I used the continuing Market rebound to sell more stocks.  Given the escalating situation in Ukraine, I think raising a majority cash position is prudent.  My holdings have been narrowed down to Small/Mid Cap Indexes, Energy, and a few dogs & cats.

So am I preparing for more downside?  The September lower double dip definitely raised the probably of an extended Market crash; however, I believe a long term range bound Market is even more probable.

Today’s energy induced inflation can be comparable to the economic situation of the 1970s Arab Oil Embargo.  But I also see a stronger parallel to the immediate post-WWII years of 1946-1950.  Then as now, government debt was extreme; interest rates were rising from a bottom of near zero; inflation was escalating due to wage inflation & pent up consumer demand; unemployment was low; and there were excruciating supply chain disruptions (wartime production was being converted back to making consumer products). 

During those years, the stock market traded in a tight range of about 20%, with high volatility switchbacks between the upper and lower boundaries.  It never “crashed” but instead vacillated around its long term moving average. Nor did it rocket to a new record high, instead it stagnated, remaining about 15% below its previous high.

Range bound markets are poor performers for buy & hold strategies, but they can be very profitable for active swing trading.  Of course, the $64,000 question is always, “what are the boundaries?”

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