I must tell you that we are in such a tricky place with the market right now. Are we going to break out to new highs, the market shrugging off the effect of sequestration, or will we roll over and go down in flames?
Putting sequestration aside for a moment, the economic data coming out of the U.S. is improving. Initial jobless claims are declining, Q4 GDP was revised higher from negative growth to +0.1%, and housing prices are finally rising.
Rather than trying to peer into the murky future and making a boldcall I think we should look at the S&P 500.
Let’s make this as simple as possible because I hate all of that hedging, flim-flammery that we so often read when it comes to the stock market. If we can close above 1,530 you’ll see this market move to all time highs.
If we hit 1,480, then at the very least we will be in for an intermediate down trend that takes us to 1,460 and if 1,460 doesn’t hold we go to 1,410.
So how do we profit from this?
Well, you have to ask yourself, even if we break out to the upside, how high can we really go? 1,550? 1,570? Is it really worth taking all that risk, getting long here for another potential 40-50 points of upside in the S&P 500?
If you are a very short-term trader, I think the answer is yes. If you are allocating money for the long term or allocating money for your 401K, I think you’re better off putting it in a money market fund until we see the next market wash out.
This is a long term chart of the S&P 500. Look at how much resistance this index is facing. These highs go back almost 15 years. Is this going to be the time that the market breaks out?
Maybe. But I don’t think so.
So, save your pennies, hold your cash, lock up your profits, protect what you already have, and be patient because stocks will get cheap once again -- and when they do, you’ll want to be a buyer with your long term money, but not yet, not yet!