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Back In The Saddle Again . . . July 9, 2011

Posted by Tom in Thoughts.
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Wow, what a week !  The recovery in the stock market was swift and bold.  These types of ‘V’ shaped recoveries (without any base building at the bottom) are tough to handle; rather unusual to see them.  But, since it appears that the sudden down trend was news related (the Greek debt), it stands to reason that once the “crisis” is over, that the markets should resume. Of course the worldwide debt issues are not resolved, just kicked down the road “I’ll worry about that tomorrow” . . . Pollyanna).

We saw significant Accumulation coming back into the markets, especially in Europe and the US.  The “risk on” trade is back in effect, with the strongest indexes being Small and Mid-Cap stocks.  I also note a kick up in select Far East countries (China, Malaysia & Indonesia).  The high end sectors (Gaming, Leisure, Hotels, high end Retail) had a very good week as well.  Technology stocks relating to the Internet and Cloud computing recovered nicely.  Financials and Banks remain at the tail end though.

Here’s a graph that shows this impressive money flow back into stocks:

Chart curtsey of HighGrowth StockInvestor.com; copyright 2010-11.

Green is Good and there’s a lot of Green in that chart.  So, we’re “back in the saddle again” and back on that long trail . . . . right?  Well, we can hope.  What would be “normal” is for a minor correction down to slow this euphoria; that would be healthy.  In the long run, stock prices are a function of earnings and the second quarter earnings season is coming up.  I expect earnings will play a big part as to where we go from here in the longer (6-9 months) term.  In the short term, it’s back to the news cycle.  A “fair compromise” between the Republicans and Democrats in the next week or two would be a bullish event.  One less thing for the market to be concerned about, and . . . the European debt crisis will continue.  Greece is at bay, but Portugal, Spain, Ireland and Italy are not that far behind.  As they say “the beat goes on”.

For now, we follow the current prevailing trend, but ALWAYS watchful for a sudden change.  These are the times that we live in.  Trends seem to be lasting for shorter periods and many investors are nervous about missing them, or worse, staying too long.  Be careful out there.  Hopefully this Fall will bring more stability.

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