Just Keep Buying Stocks
The market activity was rather mundane on Thursday, but the indices did build on the gain from earlier in the week. Most indices now trade at the highs of this month and above the February highs, which were the highs of the year. Volume was also good as the indices consolidated during the morning before an attempt to break out to new highs.
Still, despite the break out and the most recent increase in volume, something about the whole move seems unbelievable. And in many ways it is; the growth in the economy does not match the growth in the stock market, but the growth in the U.S. balance sheet certainly does.
In 2008 when the Fed embarked on the low interest rate policy, no one would have believed that three years later interest rates would be near zero. A zero interest rate is not common, but that has been the interest rate to banks for the past couple years. Of course the goal for the Fed was to balance risk and get banks to lend; institutions did not lend but did take on risk in the form of equities, commodities and emerging market debt.
The imbalance of asset allocation resulted in impressive gains for stock indices, emerging market bonds and nearly every commodity class. But now we are left, after two years of an impressive rally, with the question of can this rally last.
My target for SPX on this break out past 1335 remains 1377. Maybe more volume will role in over the next week, and I will be more enthusiastic about this most recent ascent, but until that happens I think the market is setting itself up for another spring like last year. The playbook we adopted last May and April was keep stop losses tight but also keep adding new positions; and that combination trading strategy not only kept us unhurt by the crash in May – we also recorded impressive gains from our trades in the weeks prior.
Tuesday I released the infamous Top Ten Trades of the Month report, for May. Both the report and video have been posted to the site and an email was also sent out with the full report and link to the video. Much like last month’s report, most of the trades are immediately actionable and should unfold during the month of May. If you did not receive the report another version is posted to our site.
There is every reason to lean bearish, but the only reason to be bullish outdoes every other argument – Ben Bernanke. The guy is single handily annihilating the U.S. dollar. And the destruction of our currency resulted in impressive gains to nearly all other asset classes by comparison. As long as that man remains in a power position the odds of a bear market are bleak.
