Did this weeks market make you Giddy!
I have had this question thrown at me, phrased a few different ways a couple of times the past week. “How much higher can we go?” I think these individuals for the most part are over thinking the situation or they do not understand supply and demand. If there is a demand for stocks and there is a limit on supply, price is going to go up. the reverse is true if there is to much supply and no demand, price is going to tumble. That is a very simple view, but it is always be true. If you think I’m wrong, try and buy a MacBook Pro for under $500 brand new like you can with some other brands. If there was no demand, they would never be able to get the prices they demand.
Ok there is also another element I want to talk about because it is where we are in several indexes like the S&P 500, Small Cap, Dow Transportation, and I’m sure many more and that is overhead supply. The video link below does a good job explaining it, so click an listen.
So if I show you a chart of the last 20 years of the S&P 500 and I want to you to focus on the two major highs from the past. When the first one was formed and finally bottomed, look at the second peek and noticed that it stalled in the same location. Now let’s look at the present and you will see that we are still in the early stages of breaking out and leaving that overhead supply or resistance behind. So now there is nothing from keeping prices from moving higher except supply and demand. We call this area where new highs continue to made as a vacuum. So now you have to expect my answer and what I might say. “We will go up forever until the markets decide that they must take profits, there is no demand, or some sort of drama (NEWS), that drives it down.
Below you will see the Small Cap in the same formation.
Below the International Index is a different story all together and one that might be hard to explain or accept my view. If we look at the immediate future and 2 to 3 years back on the International we are just now breaking out of the most recent overhead supply issue. The question that is obvious to ask, is the second major overhead supply that goes back 6 years. You have to ask yourself this question. “How many people or institutions would hold onto a losing position for 6 years waiting to just get their money back?” I say that the normal individual will sell out and take their losses within 2 years. The Institution are smart than that and will normally take their losses quick, write them off, and reinvest to make their money back in another vehicle of some kind.
So in my opinion the International is just in the infant stages of a breakout and is ready to roll. The European markets for the last few years have been pounded and have to look cheap to major investors here, so once again ready to roll. Lastly, compared to our markets reaching and making new highs, the European markets are not so they have room to run. So I like the Internationals here and I think that explains why I’m almost equally invested here at 30% of my portfolio.
All of the above information are using monthly charts and have a very long investment view. In my opinion if you have more than 5 years till you retire, this has to be your point of view. You cannot afford to be pulling your money in and out of the market while your investments are small because they will not grow fast enough in a slow vehicle like T-bills or the G-fund. At this present time in the market cycle, Bonds are almost useless because there is very little reward compared to the possible risk. That’s today, tomorrow my view on bonds could change if the chart warrant a change.
So let’s take a quick look at the daily charts on the S&P 500, Small Cap, International, and Bonds. Following the market using daily charts can be confusing, hard, and frustrating. This method makes me feel better because of the size of my account. If you walk up to me and ask my account size and how much I made for the year plus or minus, I will tell you so you will know I have no fear throwing my money at the market to make it grow. I have had daily moves that will make your head spin in happiness and in sadness with a touch of pain. You may think I focus on the dollar amount moves, but I do not. Personally if I actually read those big negative numbers, I might quit investing in the market. What I focus on 100% of the time is my goal. Do you have one? You should! NO Double digit losses like 10% or more a year. Attempt to earn 7% or more on 12 month intervals. Not annually, every 12 months on the roll. Lastly, babysit the market trends so I do not make the mistakes I made of 2000-2002 and late 2007 through 2009. Never again.
From left to right, the S&P 500, Small Cap, and International.
The CBL’s on all three indexes are moving up. Price is above trendlines, moving averages, and of course CBL’s. We are back on track and in the sit back mode until the next drama moment. The only that I will tell you at this point is that price on all three indexes is slightly overbought to overbought. The International moves Thursday and Friday were so strong that this index is overbought. Not slightly, but overbought. Expect it to pullback a bit or trade sideways for awhile. Expect it, but not a rule that can’t be broken.
Bonds on the daily chart are moving to the upside bit by bit. I will say that your potential return here is better than the G-fund but is it worth the risk. Bonds were up .64% which sounds good compared to T-bills up .04% so I have to agree, it is better. T-bills have almost zero risk unless the Government defaults, hehe! Bonds on the other hand have lot’s of risk. The C,S, and I all made over 2% last week alone, so if there is going to be risk, why not go there. Conclusion on bonds is this, Daily is a go and the Weekly chart still say’s no. Use your best judgment here.
Conclusion: Long term investors, 5 plus or more years until you retire should be invested in the C,S, and I until the monthly charts say stop. You could also just run the L-2050 or 2040 because they would have a better mix of C,S, and I and not so much G and F. Daily we are a go and just sitting back and waiting for the next drama moment. Expect a pullback next week while the markets work off their overbought conditions. All warnings are off of C,S, and I.
Hope your having a great weekend.
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