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Long Term Trend Being Tested

Long Term Trend

I periodically post this chart of the long term trend of the market. It is the monthly chart of the S&P 500 Index compared to the 200 day moving average. You can see that we are bumping up against the 200 day average and that historically whenever there are crosses (see the pink circles), we have a trend that lasts for a bit.

If we see a cross of the 1100 level on the index, we are likely to move higher for several weeks.

The catalyst for the change in direction has definitely been earnings surprising to the upside. We’ve had some big ones, but maybe the key for the entire earnings season is tomorrow: JP Morgan. It is the go-to bank on Wall Street, one that was able to weather the financial collapse, didn’t need TARP but was forced to take it, and paid it back once it was allowed to do so.

If they have a positive earnings announcement tomorrow my best assessment is that we’ll see the bulk of earnings be better than anticipated. I think investors will continue to move the market higher in the near-term through earnings season – and we will likely have an earnings hang-over in August that may give back some of the gains, but that will be a reassessment point for us to determine where the market is headed.

I know one thing, after two months of the market grinding lower, these last several days of positive earnings and market action sort of feels like the first time in a long time that investors have a positive feeling toward investments: positive sentiment = higher prices.

I first saw Foreigner when I was 16 at the Assembly Hall. I came to town with the girl I was seeing (yeah, this was “our” song – how teenager is that?) and we went to Garcia’s on Green Street – it was a big deal because they served us beer and we thought we were hot stuff. Since I turn 49 tomorrow, I’ve been in sort of a reflective mood and Foreigner is playing on my stereo while I write this blog and prepare for various board meetings tomorrow.

Enjoy your week and dig out those Foreigner LP’s, 8-tracks, and maybe even those new fangled CD’s. Give them a listen and remember what you were doing and with whom 30+ years ago. And, if you weren’t born yet, just wait until after tomorrow to tell me.

Mark