Since April we have been watching the market establish a solid intermediate trading range. The combination of good news one day, bad news the next day, has not swayed the market in any single direction. The above chart shows a narrowing of the Bollinger Bands between 11,100 and about 9,700. As these Bands move closer and closer together we can expect a significant move in either direction. Much like a spring that keeps coiling and has tremendous stored energy that is waiting to be released.
Typically, September is the worst month for market performance. If we break below our support level we will see a re-test of our long term low from March 2009. Don't be fooled by a brief break below support then a powerful reversal such as what we saw back in 2009. The market may briefly dip below support just long enough to cause panic before it rebounds explosively to the upside. There is still alot of fear in the market which tells me we will probably resolve to the upside. Corporate profits are very good. Even all of the "bad news" has not caused us to break below these intermediate support levels.
Many so-called experts are still focusing on the jobs numbers. Historically jobs have been lagging indicators to the health of our economy. It is like driving your car by looking through the rear view mirror. If thats what they want to do, who am I to tell them otherwise?
What DOES concern me about this economy is that historically our manufacturing capacity is what has led the way out of recession. As factory orders increase, people are called back to work. This increase in economic activity makes its way through the economy as workers start to spend their income and buy those items which they have been putting off until later. (This was part of the trickle-down effect that the Keynesians and Socialists in Washington don't want us to know about.) However, with so many manufacturing jobs exported beyond our shores, this cycle may take longer to complete. We have a significantly smaller manufacturing infrastructure compared to what we had in 1980. I am not sure if a service-driven economy can do this very well.
The fall season should make for some interesting trading opportunities. We have been telling our readers that now is the time to pick up those companies which you did not want to chase last year.
Note: The above is for information purposes only. Any decision to buy, sell, or hold a specific investment should be reviewed by your own personal financial advisor.
