Market Behaving As Expected

chart courtesy of www.stockcharts.com

These past few weeks have shown a nice rally of all of the major market averages back to their 50 day moving averages. There has been an inverse correlation between market strength, commodities prices and the US dollar. We saw the dollar lose strength when the Federal Reserve toned down its rhetoric about raising interest rates. In response to these dovish comments we saw commodities rally sharply. Oil traded back above $40 per barrel. Energy and commodity stocks rallied sharply. As the Fed began their hawkish tone again we saw these rallies stall.

Pay particular attention to the 50 and 200 day moving averages on the above Dow chart. The market is making lower highs along the 50 day moving average. The MACD has also been showing a declining trend. There appears to be good support at the 14500 to 15000 level for now. Therefore we can expect to see some range bound activity between these two lines. This pattern should continue, most likely, through the summer months. This creates some really good trading opportunities.

If the 50 day moving average (Blue line) crosses below the 200 day moving average (Red line) this would be a bearish sign. Judging by outside events, and should the Fed decide to raise rates further, we most likely will see this pattern resolve to the downside. All these factors are set to converge as we approach a seasonally weak time for the markets. There should continue to be some buying opportunities on some great stocks. With some options trading opportunities in both directions. Or one might decide to add some great companies to your portfolio during periods of weakness. Many of the blue chip companies are paying dividends well above 2%.

Happy Easter everyone!

Disclaimer: The above is for informational purposed only. Any decision to buy, sell, or hold any specific investment should first be reviewed with your investment adviser.

Market Selloff Continues

charts courtesy of www.stockcharts.com

This week saw more selling in all the major stock markets around the world. The Dow Jones Industrial Average (DJIA) lost over 500 points in weekly trade. It appears now that some margin selling is taking place as portfolios scramble to raise cash. The DJIA shows good support at its 200 day moving average. It is unlikely the market will crash this early in the season. We can anticipate some buyers to move in at the present level with a fairly good bounce back to the 50 day moving average level. That should carry us through late summer. After that we enter a dangerous time of year for the markets. There is very good support in the 14500 range. Obviously these time frames are subject to change based upon current events.

Take a look at the weekly chart for Deutsche Bank for the last 5 years. This bank is considered one of the strongest in Germany and the European economy. The stock is down 40% since the beginning of 2016. It has been absolutely crushed since reaching its high near $52 in 2014. Since then DB has lost 70% of its value. This might be related to their derivative holdings or perhaps a large amount of insolvent loans which are the result of lower commodities and oil prices. This is potentially an ominous sign for banks and may signal something more serious that has not yet come to light.



Chairwoman Janet Yellen also gave testimony in Washington this week. The Fed is looking confused and perplexed at the recent developments in the markets. "Recession is always a possibility," said Chairwoman Yellen. The Fed is now faced with potentially reversing its policy of tightening which was a bad idea in the first place. They almost made the same mistake as the 1930s when the Fed's policy of tightening helped to worsen the effects of the Great Depression. This is discussed in great detail in the book by Milton Friedman and Anna Schwartz published in 1963 entitled, "A Monetary History of the United States, 1867-1960." The book disputes the popular Keynesian economic theory that governments are needed to help the markets to function properly. Friedman and Schwartz prove that government is actually part of the problem when free markets are concerned. In a celebration of Friedman's 90th birthday in 2002, then Fed governor Ben Bernanke said, "I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry."

Disclaimer: The above is for educational purposes only. There is no intent to offend, merely to educate. Any decision to buy, sell, or hold a specific investment for a portfolio should be discussed with your investment professional.