Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Historic Bubble

Why The Stock Market Rallies Despite Worries

Stock-Markets / Stock Markets 2013 Feb 01, 2013 - 02:10 PM GMT

By: Clif_Droke

Stock-Markets

The fiscal cliff, tax increases, the debt ceiling, missed earnings - investors certainly have had much to worry about lately. So why in spite of these fears has the market continued to rally?

There's a Wall Street bromide that succinctly answers this question: "Bull markets climb a wall of worry." Fear tends to fuel higher prices when internal momentum is rising due to short covering and other technical factors. It's normally not until everyone has entered the market that the market finally tops out.


Many are wondering why the market has been so strong in the face of all these potential pitfalls. The best answer I've heard for this question to date is that the U.S. stock market is the "best horse at the glue factory" so to speak.

As one newsletter writer pointed out, "Pension plans get contributions every month and have to invest them. Individuals are saving money and they have to invest it. And high yielding bonds and CD's from yesteryear are maturing. What are your investment options?" Certainly not low-yielding CD's and Treasuries. Moreover, the dividend yield on the Dow was recently as high as 2.6%, well about the yield on a 10-year T-Bill. In other words, the U.S. stock market is winning the race for investors' dollars by default.

On the investor psychology front, the latest AAII investor sentiment readings have been at their most enthusiastic in several months. The percentage of bullish investors recently hit 52%, the highest bullish reading since last February 8. Bullish readings above 50% often signal market tops, or at least serve as preliminary warnings that a top is ahead. I would point out, though, that last year's (Feb. 8) 52% bullish reading in the AAII poll was followed by nearly two more months of higher prices in the S&P before a sizable correction occurred.

Along with increasing investor enthusiasm has come an increase in equity market inflows. CNNMoney pointed out recently that investors poured a record $8 billion into U.S. stocks at the start of 2013 after removing more than $150 billion from U.S. stock mutual funds last year. According to the Investment Company Institute, the $8 billion investors put back into stocks as of January 9 was the highest amount within a short space since ICI first began keeping records in 2007.

Inflows

As Hibah Yousuf of CNNMoney wrote, "The massive inflow represents a significant departure from the recent trend of investors fleeing the stock market." Along these lines, Art Huprich, chief technical analyst at Raymond James asks, "Is there a slow yet marginal shift out of fixed income and into equities taking place?" It's still early, but it's beginning to look that way. Assuming this trend continues it would certainly jibe with our Kress cycle "echo" forecast for 2013, which concluded that this year would likely resemble 2007 in many ways. In other words, 2013 could prove to be a major topside transition year with some major ups and downs along the way as investor bullish sentiment reaches a crescendo.

In the meantime, it will do well to keep in mind the famous saying of the venerable Charles Dow: "Neither the length nor the duration of a trend can be forecast. The best we can do is identify trend changes and act accordingly."

U.S. Economy

The Bureau of Economic Analysis said fourth quarter GDP contracted by 0.1%, which represents the first such contraction in over three years. Most of that contraction was due to a 22% decline in government defense spending, however. Personal consumption expenditures, accounting for 70% of GDP, rose 2.2%. This is more in line with the New Economy Index (NEI) which rose to a new high last week. According to Briefing.com, this was also the largest quarterly uptick since a 2.4% increase in consumption was reported during the first quarter of 2012.

New Economy Index

The NEI chart shown above is the true reflection of the U.S. retail economy. It's telling us that consumers are still spending and show no signs as yet of letting up. We haven't seen an economic "sell" signal in this indicator since the early part of 2010. It's possible, however, we could see one at some point later this year as the economic headwinds begin to increase.

Gold

Speaking of economic headwinds, these include the Congressional battle over the U.S. debt ceiling, a potential downgrade of the U.S. credit rating by Moody's, the continued weak labor market in the U.S., trouble in the Middle East and North Africa, and the coming implementation of Obamacare. Each of these factors, if not offset by an equally positive event, could prove sufficient to galvanize a gold rally at some point.

On the subject of the U.S. credit rating, the editors of The Kiplinger Letter concluded that if Moody's or Fitch Ratings were to downgrade the country's debt, banks, insurers and others "may need to shuffle some assets around. If Treasury holdings no longer qualify as ultra-safe, other, high-risk investments may need upgrading to toe the line on statutory capital standard requirements." Kiplinger also suggested that this could cause some erosion of the dollar's status as a reserve currency. Such a development would likely prove favorable to gold.

One person who believes gold will have a good year in spite of the negative investor sentiment is Rob McEwen, chairman and CEO of McEwen Mining (MUX). According to McEwen, gold tends to have a positive performance in the year following a U.S. presidential election. He points out that in the seven electoral contents from 1984 to 2008, gold climbed by as much as 85% in the year after the election. The yellow metal suffered only one decline in that span, a 36% drop in 1997, the year following Bill Clinton's second election victory.

McEwen also noted that gold stock prices as measured by the Gold Silver Index (XAU) fell in all presidential election years dating back to 1984, including last year, when the index declined 8.3%.

We're currently in a cash position as we await the next confirmed buy signal from our indicators for gold.

2014: America's Date With Destiny

Take a journey into the future with me as we discover what the future may unfold in the fateful period leading up to - and following - the 120-year cycle bottom in late 2014.

Picking up where I left off in my previous work, The Stock Market Cycles, I expand on the Kress cycle narrative and explain how the 120-year Mega cycle influences the market, the economy and other aspects of American life and culture. My latest book, 2014: America's Date With Destiny, examines the most vital issues facing America and the global economy in the 2-3 years ahead.

The new book explains that the credit crisis of 2008 was merely the prelude in an intensifying global credit storm. If the basis for my prediction continue true to form - namely the long-term Kress cycles - the worst part of the crisis lies ahead in the years 2013-2014. The book is now available for sale at:

http://www.clifdroke.com/books/destiny.html

Order today to receive your autographed copy and a FREE 1-month trial subscription to the Momentum Strategies Report newsletter.

By Clif Droke

www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014