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Border War Game (Oh, and a Look at the Market)

I wanted to give you a quick update on the market before I head to some friends to watch the annual Border War Illinois Vs. Missouri Basketball Game. I was feeling good about my Illini until watching the embarrassment at the hands of unranked UIC – never a dull moment.

Not unlike the market – see for yourself in the annotated graph below:

S&P 500 Annotated

You can see that I’ve drawn a horizontal line on the graph that represents what was the upper resistance to the market. You can see that we tested it, couldn’t sustain my 3-day rule and backed off. Then retested it and soared right through.

The liquidity in the market from the printing of dollars by the Fed isn’t making its way into the productive economy so it is making its way into the investment markets. As long as the liquidity flows, there will be an upward bias to the market.

You can see I’ve drawn a couple of blue circles and some orange boxes on the graph (appropriate I guess for where my mind is) to show you two things I want you to take from this:

(1) The blue circles show you the short-term indicators I follow and that they are flashing that we are due for a pullback; and

(2) The orange boxes show you that intermediate term indicators I follow which point to the intermediate trend in the market being up.

This tells me that you can put some money into the market now, but there is a chance it will come down a bit (remember that the short-term indicators adjust themselves either by price or by time – meaning that the market could go sideways for a bit and the indicator would come down just like if prices fell).

However, with the intermediate term indicators showing an uptrend, any down or sideways movement will be bought by under-invested market participants. The psychology has changed and people are dip buyers now based upon the Fed’s stated objective of pushing the stock market higher in order to produce a wealth effect that will generate consumer spending as a means to eventually increase employment.

Agree with it as policy or not – you can’t fight what you see. You just have to be nimble enough not to get caught when the liquidity drys up.

Here’s to a great night of basketball and for those of you that want to see a glimpse of The Chief, here is a video for you to watch:


Click Here to watch The Last Dance on YouTube

Mark