By John Reizner |
The stock market continues to rise to a disbelieving chorus of many hedge fund managers who are simply along for the ride and a mostly noncommittal investing public. Readers of my blog may know that I am invested in equities, various mutual funds and ETFs, and gold and silver.
The Dow Jones futures contract on the continuation chart closed at 9733 on September 18, 2009. A 25-30% correction in the Dow would not be unwarranted, though it may occur from a higher price level. However, there is weekly chart support at the 8640 area on this contract and a daily support band between 8290-8415, either of which may act as a barrier to further decline should a correction ensue. I expect these support ranges should hold. Note: this website will soon present charts on a regular basis.
As I reported in my July 28, 2009 article, "Is the Stock Market Rally for Real?" (see related articles below), BNY Mellon & Dreyfus Chief Economist Richard Hoey's declared that a "classic recession bottom" is in place and he expects 3% plus growth in 2010. Hoey sees the 20-25% of consumers who still have assets left carrying the weight for his projected economic turnaround. Hoey added that "I don't think you may ever lose big money in the stock market buying at the recession trough."
The Wall Street Journal reported today that "for the first time in nearly two years, households grew wealthier. Household net worth grew 3.9% to $53.1 trillion in the April-June period from the first quarter." The financial journal continued that growth in investor stock portfolios was a major part of the increase, but also that households have cut their debt for four consecutive quarters. Also, home prices are increasing in many parts of the country, which augurs well for next quarter.
I would add that the minority of investors with significant assets invested in equities may feel richer as stocks have rallied and some of these investors who have jobs may feel a bit more secure in them. Others may be buying stocks or reallocating to gold or silver in order to hedge against an expected inflation.
More well-off consumers who feel as if the worst has passed may reward themselves by spending a little of their newly reclaimed wealth. The rich may not be back to where they were before the Crash of 2008-2009, but their mood may certainly be better.
Just about everything that can happen has happened to this country economically and to the stock market in the last year. I won't spend time here going through the laundry list of events and government actions that have been the subject of many "Last Year of Crisis" programs on popular financial television networks lately.
The widely discussed 50% Fibonacci resistance area on the Dow rests at 10,363 on the Dow futures continuation chart. There is no other resistance on the daily or weekly charts at this Fibonacci level. More importantly in my view, the next ranges of resistance are between bands of 11,050-11,554 on the daily chart and of 12,235-12589 on the weekly chart.
So I expect the first area that the Dow may reach to be the lower daily band, where a correction may ensue. Should that band be exceeded, I expect the higher weekly band may stall the advance.
My investment positions are unchanged from my last post. I continue to hold gold and silver. The Franklin Templeton Hard Currency Fund, which can invest in countries with low inflation, continues to benefit from the dollar's decline. Many inflation hedge stock and ETF positions are participating in the equities rally.
I will stick my neck out and say that the longer term picture for stocks may be brighter than many might imagine. If the March 2009 low of 6469 on the Dow turns out to be as important as the 1974 low of 577.60, then we may see a series of shorter term bull and bear markets within an overall loose trading range for several years. Should a long term multi-decade bull market liftoff occur after that trading period, such as the long term bull that began in 1982, some seven years after the 1974 bottom - then reality might look brighter for stock market investors.
But for now, the market is rising.