The Market is Breaking Out!

By on March 14, 2012

After see-sawing for weeks stocks took off yesterday, breaking above resistance (Dow 13,000). This looks like a market that is poised to go higher. How much higher is anyone’s guess. The old high’s on the S&P 500 are only about 12% away, so this seems to be within reach before the election.

What is making stocks rise?

Strong retail sales and strength in the banking stocks were catalysts to push the stocks over the barrier that held since early February. Retail sales came in at the best readings in 5 months and consumer spending makes up 70% of GDP.

The Fed had their usual meeting and there were no surprises as they kept interest rates at rock bottom levels while stating the economy has been “expanding moderately.” Bernanke continues to exhibit no conscience when it comes to robbing savers and subsidizing debtors.

It appears mom and pop (retail) investors have been slow to embrace stocks and now that the outlook has cleared somewhat with regards to Europe and the U. S. economy, they are starting to wade back into the waters (shark infested or not).

What remains painfully obvious from this vantage point is that stocks have rallied strongly for 3 years. Excesses have yet to build (capacity utilization and employment). The market could easily continue to rally for the next year with the typical fits and starts.

The reality remains that stocks have collapsed every 4-5 years in the post-war period. Under this time scenario we will likely see what will be again be referred to as “the buying opportunity of a lifetime” once again within two years. You know, when the Starbucks and Whole Food Markets of the world, trading at nonsensical multiples of earnings, drop by half, or lower. It doesn’t seem to make a lot of sense to be buying into this market now, especially in stocks that have risen 5-10 fold in a couple of years.

Apple is a special case. I feel sorry for anybody who has tried to short it. AAPL is eating everybody’s lunch in the tech sector and remains THE fad of the past decade. Despite creating “must have” products for anyone under 40, the stock remains reasonably valued. When it achieves its peak is a guessing game that perhaps only the Sultan of Savannah can summon his divining powers to predict. I bought a few shares in January and the stock is up a whopping 150 points in less than three months. How’s that for momentum!

S&P 500 - Bollinger Bands

One Comment

  1. The Sultan of Savannah

    March 14, 2012 at 12:14 pm

    Your prose is almost witty today! Did you hire a writer or have you been hitting the sauce?

    I’ve long supported Apple because they make products that “do” things the sheeple find amusing. Venture into the commons and you will see the village idiots iPhoning/iPading away as if they were a pre-Lou Gehrig’s stricken Stephen Hawkings. Compare with Microsoft and you’ll find MS’s products “can” do things the sheeple would like, but alas, their feeble brains are insufficient to manuever the product to a dopamine releasing state.

    I don’t think Apple will collapse anytime soon, but I think they will need an entirely new product category (perhaps a gaming console or some other money pit) within the next 2 years to maintain their momentum. I don’t think Apple TV will cut it. Many of their products compete against themselves.

    As for the market, the current administration (as all do) will do everything in their power to keep the markets afloat in an election year. There will be hell to pay.

    TSoS, Always Right Even When Wrong

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