back to blog homepage

Higher Highs and Higher Lows – Part 2

S&P 500 Index

A couple weeks ago, I had a graph on the blog here that included an explanation that as long as we continued to see a pattern of higher highs and higher lows on the chart, I’d continue to be constructive on the market which was trading at 1,350 at that time.

You can see on the graph above that the pattern has continued and we now stand at 1,379, or a couple of percent higher on the index. I’d expect that we will see the pattern continue and the market pull back a bit – and what we want to see a new higher low that leads to a new higher high. The obvious question is “will we”?

Earnings have been mediocre so far this earnings season. Even when a company comes out and says that it had the biggest quarter ever (Caterpillar said that a few days ago) many in the market won’t believe it. CAT actually ended down that day in spite of having its best financial performance in its existence. My guess is that this negativity in the face of positive news will lead to some profit taking.

The Fed and the European Central Bank probably will not institute any sort of stimulus this week, which is what many have been anticipating. My guess is that this disappointment will lead to some profit taking.

But, on the positive side of things, there was news out of Washington DC today that there may be a deal in the works to extend everything that comprises the January 1st fiscal cliff to March 31, 2013, so that there is more time post-election to work on a solution. This sort of cooperation between the usually recalcitrant pol’s is good news that should make any profit taking subdued – no one wants to be out of the market if one of the major headwinds to further profits is being addressed, if even temporarily.

So, at this point, I am happy staying the course and letting the pattern develop. We have sold a few lower rated (according to our analytical system) holdings here at the top of this most recent higher high, and plan to reinvest the proceeds as we work to form the next higher low. But, all-in-all, we are staying fully invested other than these timing issues.

Click Here for Today\'s Video on YouTube