Morning Market Thoughts

by DAN Good morning. Just a few thoughts:

We’re set for a bit of a weaker open due to a surprise decision out of Japan — the Bank of Japan is foregoing any stimulus and instead saying th at their economy might be getting better. This surprised the markets because, generally speaking, Japan always seems to have another policy change up its sleeve that ultimately doesn’t work particularly well.

But I don’t see this lower open as anything other than a brief respite that will bring more money into stocks. The futures forecast an open that’s just near the bottom of yesterday’s range. So…nothing new to report. The Russell 2000 and S&P Midcap Index are both decisively above their 200-day moving averages with a “golden cross” just happening today on the S&P Midcap index.

This is all bullish stuff. The only way you can argue that the trend is anything other than upward is if you are still a bit shell shocked from the volatility over the past several months. I understand that dynamic because I’ve been there before. But you’ll ultimately learn that charts are much much more informative than your own emotions and fears. Each of us has emotions and opinions based on experience. So our prior experience is always factored in to our current view of things. If your account value dropped significantly during the last steep decline and you sold out at the bottom, then you don’t believe the current rally. You see it as a false signal that is to be avoided. You are waiting for the next pullback so you can undo your mistake and put your money to work. That’s all you see. No matter how many charts you study, you just don’t believe that stocks are about to move higher.

On the other hand, if you bought the bottom and are feeling good, you are seeing nothing but sunshine ahead. Your prior experience is coloring your current view.

I’m suggesting that you simply look at how the S&P and Dow are sitting near all-time highs, and the small/midcap indexes are trending higher after finally breaking above their 200-day moving averages. If you were just draw a couple of columns of the status of the market, it could look like this:

Index Above/Below 200-day moving average

SP500 Above
Dow-30 Above
Dow-20 Above
S&P Midcaps Above
Smallcap Index Above
Financials (XLF) Above
XME (metals) Above
XLE (energy) Above
XLV (health) Above
TLT (long bond) Above

So is there any further ambiguity? I sure can’t see any.

That’s all.

Dan

See you in the forum to discuss.

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