Today the market ended the year’s worst correction with its strongest follow through day. The indexes broke above their 200 day moving average in above average trade.
Next hurdle will be the 50 dma- will it act as resistance or can the market break through to close out the year with new highs? The midterm elections might be a contributing factor, and like Ebola for now remain a wildcard.
There is trouble in some sectors, particularly the stodgier companies that have been getting a pass from extremely low interest rates- Coke, IBM, and McDonalds are floundering (no surprise). But even some of the techies like Google and Netflix are forecasting slower growth. Apple remains a bright spot.
I’ll be watching near term trends- stronger dollar, weaker oil, and continued low interest rates. With the global economic slowdown, I think it’s best to avoid multinationals and focus on smaller US domestic companies that provide services and consume energy (particularly petroleum & gas).
There are still many things to be concerned with but I think government meddling remains the largest issue. Note the below chart, which illustrates the rise of the market with the Federal Reserve’s balance sheet. Observe the shaded areas- each time QE has ended, the market corrects.