Is the Market Bulletproof?

If the stock market has you scratching your head, don’t worry. You’re not alone. 


I’ve been half-jokingly calling the stock market “bulletproof” for the last couple of weeks. And it’s because stock prices just keep marching higher. It’s like there’s no bad news that could possibly bring it down.   


Last week, we had a volcano eruption that grounded European flights and cost those airlines at least $2 billion. Then Goldman Sachs was accused of fraud by the SEC, which makes a financial reform bill that could affect the entire banking industry’s profits, and the net result for stock was a one-day decline.   


And even then, the S&P 500 immediately recovered that loss and made a new yearly high. What’s going on?   


It’s pretty easy to look at how far they’ve run just this year and imagine that there’s plenty of downside potential. And there may well be. So far this earnings season, companies that miss earnings estimates are getting absolutely pounded.  


Again, it’s easy to imagine what could happen to the stock market if economic data starts missing expectations by a wide margin. But the fact is, even when economic data misses expectations, the stock market barely reacts.   


It’s enough to put the conspiracy theorists into high gear. I’ve been reading more and more commentary that’s calling the market manipulated and propped up by the government or the Fed or the hedge funds. The market doesn’t sell-off because it isn’t “allowed” to, they say.   


I’m not one to buy into massive conspiracy theories. I don’t find them helpful. Sure, we could certainly say that government stimulus efforts are a form of manipulation. Low interest rates and emergency lending programs have certainly made things happen that would have otherwise been impossible.   


Ultimately, I have a hard time believing our government could pull off a widespread market manipulation scheme. And besides, I prefer the KISS principle and Occam’s razor – let’s not introduce more variables into an explanation than are needed.   


Interest rates are low. Money is cheap. And we’ve seen the effects of cheap money before. Between 2004 and 2007, housing prices and commodities took off due to the effects of cheap money.   


Cheap money has certainly helped the banks return to respectability. And it’s helping the housing market, too. Just look at what a free $8,000 credit is doing for new home sales.   


Automakers, commodities, credit card companies — it’s hard to find an area that cheap money hasn’t helped. Well, except for unemployment. There is a point where cheap money will boost hiring significantly. Unfortunately, that point coincides with inflation. And interest rates will start rising before it has an impact on the unemployment rate.   


At some point the trend for the stock market will change. It will be pretty obvious when that happens. It seems logical that a trend change will occur in conjunction with a change in sentiment toward interest rates.   


Right now, it is believed that interest rates won’t rise until early in 2011. But those expectations are subject to change and there may not be anything logical about it.   


So what’s an investor to do? Well, if you choose to simply stand aside and not participate in the stock market rally, I can’t blame you.      


But there is money to be made in stocks. For the most part, earnings have come in much better than expected. Again. There is strength in the stock market, and some investors are buying with conviction.   


Today is the last day to send TradeMaster Daily Stock Alerts’ Jason Cimpl a ticker symbol for him to review. If you’re interested, Jason does a great job with chart analysis. And his skills have lead to some excellent short-term gains for his readers.   


You can follow this LINK to get your stock reviewed and get 2 weeks of TradeMaster Daily Stock Alerts for just $9.95.  


Jason’s TradeMaster service has one of the lowest cancellation rates I’ve ever seen. That’s because his readers love his work. And they make good money from his analysis. I’m betting you’ll make some money too, if you give him a try.  

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