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It’s Not Sane

OK, so I am easily spooked – we hit the March low at 666 on the S&P 500 Index. Today, we bounced off 1111. The Dow was down 11.11 today. Is this too coincidental?

We are struggling to push through the 50% retracement I mentioned in a post the other day – up a bit and then back a bit, but not pushing through it.

Check out the chart below

sc2

The uptrend is still clearly defined, but we continue to have below average volume. That combined with some of the technical indicators now showing that we have a market that is getting extended, I would not be surprised to see us pull back t the 13-day or 34-day moving averages – that has been the pattern and its been healthy for the market to move in these +7% then -4% waves. Maybe what we need to break through the 50% retracement level at 1119 is a soft pullback of 4% that will get the buy-the-dippers back in the game before we ultimately push through 1119 (on the way to 1250? that was the level of the market before the crash – ultimately we have to hit that before I’d even consider some of the calls I’m hearing that this is a new bull market).

My best assessment? Think of the stock market as the Bee Girl in this video (may Shannon Hoon rest in peace – why do all the promising artists think its smart to OD on pills and booze or smack?):

+ Initially, she is shunned and scoffed at as she craves some attention (think of our call on March 9th on this blog that we had an intermediate bottom in the market based upon the technical indicators),

+ then she decides to try to change the mindset of those watching her (think of the big rallies in the late Spring when the talking heads on CNBC were telling you to sell into the rally in spite of what the technicals were showing),

+ then she breaks through the fence and is joined in her euphoria by the onlookers (think about the euphoria of the market in July as we got our first quarter of recovery earnings),

+ and finally she has received all of the accolades and the party is in full swing yet the band keeps singing its not sane (is it really sane to think that the market can continue higher in the face of 10.5% unemployment – heading to at least 12% in my analysis that you have not yet seen on this blog – and other headwinds?)

The only explanation for the continued move higher is the Fed liquidity needing to go somewhere and instead of productive expansion of our economy its going into the investment markets – that, and all of the investors and investment managers (aka, the buy-the-dippers) who have been sitting on the sideline and who have recently put on their yellow and black bee suits wanting to join the party.

So, the liquidity and the eager to invest will keep pushing this higher until year-end and maybe longer. My focus in on year-end and we’ll assess the prospects for things after that.

Remember, invest what you see, not your preconceived notion of what you should see.

And, apologies if you have the image of the Bee Girl in your head for days to come – I know I will. We’ll just have to fight the urge to do the Bee Girl dance tomorrow at work – its not sane!

Mark