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The Market: “Through The Looking Glass” January 21, 2012

Posted by Tom in Thoughts.
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With apologies to Lewis Carrol and Alice (in Wonderland).

Welcome those who have found their way to this site via my recent article in Stocks & Commodities magazine.  My goal here is not to provide specific securities to buy or sell, but to survey the overall market and give some brief economic perspectives.  I hope that you find it useful and informative, and that you will return.  (posts are made weekly, generally on Saturdays unless I’m traveling)

The looking-glass of where we are is actually looking in the rearview mirror.  Most major world markets finished 2011 on a positive note, gaining enough to make it a break even year.  That momentum did continue on into January with some nice gains in selected sectors.  Let’s look at what is going on currently in the broad S&P 1500 Index:

We note the strong movement with broad higher prices as signified by the shades of Green in the pie chart above. (as always, click on the graphic to enlarge it for easier viewing)  A lot of Green (bullish price moves), modest amounts of Yellow (neutral) and not very much Red (bearish price movement).  Next Accumulation or Distribution of shares of those companies in the S&P 1500:

Pretty much the same situation; a lot of Green (money moving into shares), modest Yellow and light Red (money moving out).  Looks very positive right?  OK, so what sectors of this recent movement are doing the best & worst?  The table below gives us that reading:

So far, we’ve been looking in the rear view mirror . . . where we’ve been.  Now some thoughts about the future, looking through the front windshield.  While this move has been fairly broad, as we see in the charts above, there are signs that this market is “over bought”, that is it has moved too far, too fast.  One indicator is volume.  Volume has picked up since the first of the year but is not terribly high, which would support the higher prices better.  Also, there are some momentum indicators that are showing a divergence to the price; that is, prices making higher highs and the oscillators not making higher highs. 

By themselves a diverging indicator does not “prove” anything, just an indication of caution.  At this point I’d say the market is susceptible to bad news.  Either earnings or Europe related.  If we are “priced to perfection” anything bad will not be taken lightly.  If this market has discounted bad news, it will shrug it off and move higher yet.  Looks like we have a line in the sand right now, an area of price support that should hold.  If it does not, a correction could very well be starting.  Where is that price support level?  My guess is around the 1265 mark on the S&P 500 Index.  I’m watching that closely.  Untill then, the current price trend is up.

Have a good week and be watchful through the looking-glass.   🙂   ….. Tom  …..

(charts & data by HighGrowthStock.com, copyright 2011-12, used with permission)

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