Last month I mentioned that all the technical indicators we follow had changed to positive and that I believed we would see higher prices in the market. Well, that’s what happened. However, there’s been a few interesting things taking place in this rally.
After we saw a typical correction of about 10% that started at the beginning of April and ended around the beginning of July, things have progressively gotten more positive. I noted that one indicator after another was changing from a negative position to a positive one. That trend is currently in place with the market making a series of higher lows and higher highs; an ideal situation we like to see.
What’s really interesting about this rally is the lack of individual investor participation. Bond funds continue to rake in huge sums of money as equity funds see large outflows. So what’s driving the market when it’s being treated like Rodney Dangerfield?
Corporate earnings have come in stronger than expected. That’s a big plus. The concern though, as usual, is if the same earnings growth can continue or is it starting to wane. The fed’s attempt to keep interest rates low might be working for us on two fronts. First, keeping money cheap helps businesses borrow at very low rates (and home buyers too). Second, it might be forcing those seeking income to spread some of their money into the market. We all know how low CD rates are now.
Another plus is recent remarks made by the Federal Open Market Committee. Their concern about the fragile recovery has led them to state that they stand ready to do whatever is necessary to keep the economy moving along if things slow down. Recent reports of stronger retail sales, durable goods and housing may have given them some breathing room for the time being though.
The only real concern I see about this rally is the extremely low volume and the Dow Jones Transportation Average lagging major market indexes. It typically leads them.
Who knows how long this rally will last? Just enjoy the ride while it does.
After we saw a typical correction of about 10% that started at the beginning of April and ended around the beginning of July, things have progressively gotten more positive. I noted that one indicator after another was changing from a negative position to a positive one. That trend is currently in place with the market making a series of higher lows and higher highs; an ideal situation we like to see.
What’s really interesting about this rally is the lack of individual investor participation. Bond funds continue to rake in huge sums of money as equity funds see large outflows. So what’s driving the market when it’s being treated like Rodney Dangerfield?
Corporate earnings have come in stronger than expected. That’s a big plus. The concern though, as usual, is if the same earnings growth can continue or is it starting to wane. The fed’s attempt to keep interest rates low might be working for us on two fronts. First, keeping money cheap helps businesses borrow at very low rates (and home buyers too). Second, it might be forcing those seeking income to spread some of their money into the market. We all know how low CD rates are now.
Another plus is recent remarks made by the Federal Open Market Committee. Their concern about the fragile recovery has led them to state that they stand ready to do whatever is necessary to keep the economy moving along if things slow down. Recent reports of stronger retail sales, durable goods and housing may have given them some breathing room for the time being though.
The only real concern I see about this rally is the extremely low volume and the Dow Jones Transportation Average lagging major market indexes. It typically leads them.
Who knows how long this rally will last? Just enjoy the ride while it does.
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