Today the S&P500 rose above the 50 day moving average in significant volume. That’s a good sign.
The market continues to show the same personality trait- manic/depressant. Exuberant for a few weeks, hitting new record highs and then a slight decompression. The downers are never more than 6% [versus a true correction of 10-15%]. Each mild correction has blown off enough steam to set the market in motion for yet another run.
There are many theories as to why the market hasn’t experienced a deep correction in well over a year. Everyone keeps forecasting and waiting for the overdue “big correction”. My personal theory is that’s exactly why we haven’t had a substantial correction…everyone is waiting for it. The big drop will come when it’s least expected.
So for now, the pattern is pretty much what we’ve witness since May 2013. One step forward, half a step back. What to do now that the market is trending up? Remember, at least 70% of stocks follow the broad market trend, so now is the time that traders are buying.
How long will it last? I have no idea. The uptrend could fail tomorrow. The market’s moved straight up for the past four days, don’t be surprised if it encounters some resistance, especially around S&P500 1850. If we get through 1850, then 1900 will be achievable. Especially if the 10 year Treasury hovers around 2.65%. The Fed has promised to keep short term rates at near zero, but they’re losing their grip on longer term rates.
So, if the trend holds, we can probably expect a 2-6 week rally with the S&P500 blowing past 1900, maybe even beyond 2000. The media will go into full blown hysteria when the market nears yet another meaningless “psychological milestone”. When the enthusiasm gets overwhelming, use that as a sell signal.
The bad news is that 1900 on the S&P500 is only a little more than 4% above today’s close. So we might not see a spectacular run before another depressant pullback kicks in. But in this Federal Reserve fueled market, the prudent investor isn’t greedy. Actually, the prudent investor isn’t ever greedy.