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Big Day In The Market

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Is it any wonder that the market can go up when the Fed quells the fears of investors by saying that they are going to keep the liquidity flowing for the foreseeable future.

Given that the real economy is still soft and that economic activity is just starting to pick up, it is completely logical that the investment community knows this liquidity will find its way into the investment market.

Notice how the market respected the moving averages. The critical short term average did not cross their longer term averages to the downside. The trend held and we reversed to the upside once some positive news quelled the fears. And, you can see that our series of higher highs and higher lows has continued – a sign of a strong uptrend. A consequence of this trend continuing, most of our stop losses did not trigger with the pull back – fortunately for our clients whose assets remain in the market instead of in cash watching the uptrend continue.

Look at the technical indicators: the price-volume indicators are showing that we were oversold and have begun to point to further gains; the money flow indicators are showing that cash is still moving into the market; the breadth indicators are showing that we were oversold and that the rally is starting to expand; the volatility indicator is showing that we were at the upper end of the fear levels and fear has started to subside.

All of this is happening as the dollar’s short-lived rally has ended (see chart below from Collin Twiggs):

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You can see that we have bumped up against the resistance level and are trading between the downtrend line and the resistance level. My best assessment is that the BIG investment in gold by the Central Bank of India this week (equal to 8% of the world’s annual production) will serve to spook those dollar bulls into the realization that foreign central banks have decided that holding gold, oil, copper, etc., is a better thing than holding dollars. The dollar should move back below the downtrend line an continue its move to 70.70 – the low prior to the rush to the safety of the dollar last year when the world’s financial systems were at risk of failure.

Tomorrow morning we will have some important news on employment. If its disappointing, the market will sell off. If its too good, the market will sell off. It really needs to be at or just above expectations for the market to continue the move up – unless it is a home run, then we will see a huge rally. Traders are easily spooked and very suspicious – however they are also cheerleaders at heart. Friday should be interesting, but it shouldn’t break the uptrend unless it spooks the market. “Save the cheerleader save the world” as the tagline goes.

I’ve written it here before and will probably do so again. These are unprecedented times that require you to invest with the uptrend but protect against the downtrend. Things are almost surreal…so I hope you enjoy this bit of music from the Surrealist Pillow album (two songs sung by that rock goddess, Grace Slick, and a Smothers Brother to boot!):

The Summer of 69 was a cultural turning point in our country – it really wouldn’t surprise me to see something similar happen in the next decade. If we are now experiencing our second Camelot, the timing is right for a second social awakening. I was a mere pup in the summer of 69 – didn’t really know he difference between P/E Ratios and PE Class at that point. However, as I close in on the 1/2 century mark I can see patterns repeating themselves – in the stock market and in history. Its all surreal, at least to me…

Mark