Wednesday, April 22, 2015

2120 or bust

Over the past ten weeks, the S&P 500 index has closed at values between 2100 and 2120 no fewer than sixteen times, but it has yet to gain that final 1% that would take it above 2120.


All indications are that the S&P will eventually make the jump.  The index low points have been rising, indicators remain very bullish, and the odds are slim that the present six-year rally would end under these conditions.

I hope by now that readers have internalized the reality that the stock market does not react logically to economic conditions.  The U.S. national debt is now above $18 Trillion, and its growth only accelerates with each new transfer of power in D.C.  Only 62.7% of Americans are employed (tying a 38 year low) and this fraction has been dropping precipitously since 2008.  Yet despite the dim long-term prospects for our economy, the S&P 500 index has more than tripled since March of 2009.

Sure, we may find out that the Federal government has been clandestinely buying stocks, or that the high frequency trading computers have been manipulating stock prices higher, but that's precisely my point.  Fundamental indicators (interest rates, earnings per share, unemployment rate) are not good predictors of stock market behavior.  Technical analysis, on the other hand, has been seeing very high buying pressure during this rally, and has correctly predicted (so far) ever-higher prices.  Indeed, this high buying pressure may turn out to be illegal/unethical market manipulation, but from the standpoint of an investor who simply wants to know which direction the stock market is going to go, who cares?  The bottom line is that technical analysis can see the effects of market manipulation (if not the cause) and take advantage of them, while fundamental investors cannot.

2 comments:

Cathy said...

Fascinating analysis. But even your savviest follower has to experience a small shudder at the implications of the query: "Who cares?" Fascinating analysis and a fascinating world within which we play out our fortunes,

Jody Wilson said...

Yes, if anyone has good ideas for stopping government corruption and market manipulation, then I'm all ears! But in the meantime it's still wise to invest based on what is happening, rather than on what we want to happen.