Good Evening,
The market rebounded strongly today. That’s a good thing, right? In a manner of speaking it is, but in another manner of speaking it is not. Let me explain. Anytime a market is extended (or shall I say is say bumping off of overhead resistance) it is going to continue to make small gains and then pull back again and again until ultimately it breaks down with a major correction. Let me further explain: At the same time that it is bumping off of overhead resistance, it is also bumping off of lower resistance. Eventually, it will break through one or the other and a new trend, be it short or long term, will be formed. While not impossible, it is highly unlikely that we will break through overhead resistance and establish a new upward trend. Most technical analysts recognize the market as “needing a rest” or “needing to reset” which in simple terms means to correct and start back up establishing an new upward trend at which point they enter the market and make more money. This train of thought is based on the premise that nothing can go up for ever. So what gives now, or should I say for the past three years until now? Quantitative easing by the FED which as many of you know is the process of buying bonds and mortgage securities in order to fuel the economy. In simple terms again, printing money out of air and inserting it into the economy. The result of this is and has been that the artificially manipulated market continually bumps off its highs as it is currently doing. Will it continue to do so and rise? Probably to a lesser extent than it did in 2013, which will decrease as the quantitative easing is tapered. Everyone knows this and it results in a panic every time that the term taper is mentioned in the same breath as FED…. All that said, the market for the foreseeable future is likely to be choppy as it has been for the beginning of 2014. You can position your portfolio in equities which will be right 50% of the time or you can position it in defensive areas such as corporate or government bonds, gold or silver, or for TSP the G and F Funds, and you will also be correct 50% of the time. All you can do is take what the market gives you and be ready for the big (and I mean big) correction when it comes. I do not see the large opportunities to profit as we did in 2013 being in the cards for 2014. Nevertheless, I will continue to watch the charts and react to whatever pricing action that the market throws in my path. I just wanted you all to understand that this will probably be a frustrating year to trade. Please study the chart I have added below. Note the number of times in the past twelve months that upper and lower resistance has been tested.
Stocks snap back with triple-digit Dow gain
The day’s rally left us with the following signals: C-Neutral, S-Buy, I-Buy, and F-Buy. Our current allocation is 42/C, 58/S. After yesterday’s down turn it was off -1.16% on the year. However, it will be back in the green after today’s results.
