Wednesday, September 2, 2009

Wither the Stock Market?

The Stock Market took a hit recently with the S&P 500 dropping below 1000 yesterday, the first of September. Here is the graphic:

So, here come the Pundits starting the talk again about whether the Stock Market now will crash or just retrace its rally. OK, let's have a reality check.

The Stock Market turned around in March and has been rallying ever since. Since, the Sep 15 2008 infamy, when the FED froze the money in the banks and Obama's socialist agenda threatened to drive us into Depression II, the world was in a financial panic. Then in March, the tune changed. A Depression seemed no longer in the cards. The Market reflected the change in expectation, we were in a Recession only. There is a hesitation now as perception is about to change again. I sense the investing public sees a shallow recovery (a jobless recovery), where corporations will do OK because they shed millions of jobs, the economy is reduced and Obama's most destructive initiatives (Cap and Tax and ObamaCare) are at least partially stimied. So, we can expect the rally to continue to maybe S&P 1300 (or the DOW around 12000). Any further moves up would require a Republican House and a Republican President. Cycle predictions call for a crash next year.

I have included the graphic of the S&P 500 to point out several features. While, the short-term MACD (the black line in the lower graph) has dipped below the red line (which is the longer term MACD or momentum), the moving averages do not signal a major change in the Stock Market. The 50 day moving average and the 200 day moving average are still moving apart, so the momentum is still positive though maybe a few rough days lie ahead. Could this change? Of course. If ObamaCare is approved or Cap and Tax becomes law, expect the worst. Otherwise, it's a rerun of Jimmy Carter: stagnation and eventually (when deflation stops), inflation and increasing gold prices.

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