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Market outlook, trend still unchanged

Market Market slid again today and the “we-know-the-future” experts out there are competing among themselves who comes up with the best reason why. All of them are united however that the reason is a fear of the US economy slowing down after weak earnings reports.

I believe if you go out there and ask any average American how he or she feels about economy, all of them will tell you what those “I-hear-nothing-I-see-nothing” experts discovered just this morning. When I was browsing the internet, all discussions are full of post saying one thing – the economy isn’t good, companies aren’t hiring and macro data definitely do not match the growth of the market.

Recently my friend blogger Marvin was asking on his blog an interesting question in his post “Open Letter About Real Estate“. He was asking how increasing interest rates, which would hit us potentially in the near future, would affect people’s ability to purchase a house. When I was answering to his question with my rhetoric question-response I was thinking that with rising interest, we may see also our salary rising and that would offset, at least partially, the negative effect of higher interest rates.

His response struck me. He said: “…I certainly haven’t gotten a raise the past 2 years.”

That still indicates that the economy is fragile and companies very cautious in hiring and raising salaries. And this may take for a long time, because of artificial money pumping into the economy. I understand the reason – to support and encourage customer spending. But if people are not secured in their salaries and do not know what may come tomorrow, they will not spend. At least those savvy ones.

And that brings up the question, will the market continue in its fabulous bull trend, or will we see a long time anticipated correction? Is the trend over? Will the weak economic data finally open eyes to investors blindly jumping in the market at any bump on the road?

SPX

Click to enlarge

The metrics I usually watch, such as Chaikin Money Flow indicate the market still has money flowing in and ultimate oscillator indicates the market in somewhat oversold territory. The new low the market is forming is higher than the previous, so from this perspective I am seeing the trend unchanged and I would expect the trend to continue, unless something changes. For example the new high the market will create would be lower than the previous one. In that case we may witness a market reversal. It is not happening yet however.

Regards and happy trading!

Image courtesy of Zuzzuillo / FreeDigitalPhotos.net

 





5 responses to “Market outlook, trend still unchanged”

  1. In the long run the markets will be just fine so I’m not worried about making purchases now. You never know how long the market will continue to go up despite negative news, heck it’s shrugged off everything so far this year. So if you continue to sit on the sidelines and just building cash it could be 10 years until you get a great opportunity. would anyone really wait that long?

    What has me worried is that company’s are so lean right now and profit margins are at all time highs. What will the markets do when the margins start to compress? I’m sure it won’t be good for the markets but great for those patient investors. Only time will tell, because hopefully with margins compressing at least some of that is due to hiring and therefore lower unemployment.

  2. Thanks for mentioning me Martin. I have seen the inflows increasing as well. 6 months from now I think we’ll have a clearer picture.

    • Martin says:

      Marvin, I was thinking a lot about what you said. I can’t believe it still doesn’t look well and we are not out of the forest although many out there are trying to convince us otherwise. Maybe it is their purpose. Anyway, this can create a great buy opportunity if it pushes stocks lower.

      I actually got raise last year and this year, so I kinda was wearing those “pink glasses” seeing everything rosy.

  3. The market as a whole has been grossly overvalued for a while. But you can find value in any market. It’s just harder to find in an overvalued one than an undervalued one.

    • Martin says:

      I agree, you can still find such companies and I would love them drop even further to really get a deal. Once I was buying JNJ for $58 a share. I would be crazy buying it again for that price!

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