Putting The Markets Into Perspective For ETF Investors
Looks like we are seeing a reversal from the intermediate-term rally we have enjoyed for the past couple of weeks. There simply does not seem to be enough momentum to keep pushing stocks up, for now. It is quite possible we will test the May lows and perhaps even lower before we see a more solid bottom forming.
How low can it go? While I can only speculate based on my analysis, I do believe that it is possible to see Dow 9,600 or even 9,400. Scary, but it does not compare with Dow 6,400 from March 2009 and 9,400 was the high from last August.
Putting this into perspective, at those levels last year there were many investors speculating that it was the end of the rally and there could not possibly anymore upside. The rest is history, so no need to go into further detail.
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From my perch, I do not see a fresh big bad bear market in it’s earlier stages. The fact is, this has been a spectacular bull run within the context of a longer-term bear market. We are still way off the 2007 highs and until we can get back to those levels, we haven’t shaken off this bear.
Furthermore, I still believe that a pause in this year-long bounce is healthy moving forward. The fact that it is steeper than a standard 10% correction, is due to how long we have gone without much of a retracement in addition to fears related to sovereign debt problems. If we can get a solid medium-term bottom put in place, we could see Dow 11,000 again quicker than most people expect.
If anyone thinks that the stock market is a direct measure of economic health, then they need to look at unemployment numbers, the jobless recovery and countless bubble rallies from the past. There is much more than economic fundamentals that drive stock prices. Sovereign debt problems have been looming since the reckless spending started. We have seen several blatant warnings including Dubai and Greece (the first time). Yet everyone is “surprised” and runs for cover calling for economic armageddon. I can’t even watch CNBC anymore without being tempted to throw my remote control at the sight of another “expert” giving his two cents on Europe.
Markets are driven by it’s participants. Market participants are driven by their human emotions. Basically, it all boils down to fear and greed. To quote the great Sir Warren Buffett: “Be greedy when others are fearful and fearful when others are greedy”.
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