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Understanding The Rally And The Next Stock Market
Stock markets continue to rejoice on hopes and dreams of a path
through the European mess. Italian yields dropped sharply today
after major austerity measures were pushed through. The
SPDR S&P 500 ETF
) is trading at $126.80, +1.94 (+1.55%). In addition to
optimism about Europe, economic data in the United States continues
to be strong. Most amateur traders are looking to buy the market
into the end of the year, expecting a Santa Claus rally to
continue, but extreme caution must be used.
First, traders and investors alike must recognize that the Dow
Jones Industrial Average is up approximately one-thousand points in
the last week. Buying now is paying a premium on the market that is
not needed. Second, remember this market is bipolar. One week the
savior is born and the markets will never go down, while the next
the world is doomed due to Europe and the crisis. Paying up for
anything is a fool's game as the pro traders take money from the
Projections for 2012 are grim. While we may float and limp into
the end of 2011, next year will be another rough one with a fair
amount of downside and wild swings.
Looking at positives and negatives are always important. The
positive for the rally today is easy to spot. The financial sector
is rocking. Stocks like
JPMorgan Chase & Co.
) are having a monster day. The banks are leaders in the market and
their strength confirms that the rally will hold today. JPMorgan is
trading at $33.83, +1.50 (+4.64%).
Commodities are weak today. Everything from oil to gold, silver
and natural gas seem to be left out of the rally. This may be a
signal dumb money is chasing the rally and jumping out of
SPDR Gold Trust (
) is trading at $168.44, -1.48 (-0.87%).
Again, the key as a trader is to avoid the emotional decision.
Investors chasing the rally now are falling into emotion and that
is why they always lose money. Stay patient and follow the charts.
They will tell you the truth.
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