Hope everyone is having a good holiday season. Thought I would touch base with the community on my thoughts regarding the US stock market as measured through the S&P 500 Depository Receipts (aka SPY ). As I have been suggesting for a while now, the US stock market is on one heck of a run and while previously I had suggested it was clear sailing ahead, that isn't the case now . Indeed, there is enough anecdotal evidence to suggest investors should start considering exiting US stocks and I will take a few minutes here today to review the Rational notion behind that idea.
The rally off the Jr. Bush-Crash bottom has been breath taking to say the least. In a totally unprecedented move, the US Board basically bought back all the 'paper' Freddie Mac and Fannie Mae issued. In essence clearing the economy of a massive overhanging debt burden the public simply would not be able to deal with. Unlike Japan, the American's decided to take direct action to deal with the debt burden and that gambit seems to have paid off in the short term. This was a big gamble by Ben Bernanke and the only real victim of the policy seems to be the US Dollar itself. The purchasing power of the greenback has fallen and US consumers can see it at the stores but at the same time US equities have literally tripled off the lows. Obviously, a move like this in price certainly isn't sustainable and while it may confound the 'experts' over the short term, one must understand market can (and often do) remain illogical far longer then any of us can remain solvent. was a massive shock to the system and it really doesn't surprise me to see stocks act they way they did in the face of the Government literally throwing money at the market. My hunch here, given enough time, prices will revert back to a more 'normal' rate of growth. The problem for new investors here is, they don't realize they are walking into an extended market. And of course, we all know, institutions need the public to come back to the stock market to 'buy the top' as the public always does. So unfortunately, while the 'story' for Main street may be getting better, the 'risks' for Wall Street are growing by the day. So then why look for a top now?
Please Note: The chart here is a monthly perspective, so signals often come about once or twice a decade. For example, using our moving average model (the relationship between the 13ema & 30sma) one can clearly see the last 'investment' buy signal was Aug, 2010 when the SPY was 108.69....doh!