Saturday, December 05, 2009

Stock Market outlook to year end.

I thought it was time I updated my charts on the progress of the Dow and the S&P 500, as it has been a while since I had. Above, are 3 year charts of both of these Indexes. You will notice that we clearly broke above the 3 year red downtrend line and are now in no man's land, between the Blue and the red line. We do have resistance on both of these charts noted by the Blue lines, which in my view will keep us restricted until well after the end of year into earnings season in January. These Blue lines show where there was previous support in a declining trend, which now are new resistance levels in an uptrending market. If you are of the belief that things are on the long way back up, then you should see a break above these Blue lines, after we see the 4th quarter earnings data reported through until about mid February, when 2/3 of the companies earnings will have been reported.

If on the other hand, you believe that we have run up too far, then during this same timeframe you should see the market stay below the Blue line and most likely fall below the red line.

The real question is this, will the stock market reflect the real economy of Main Street or will it continue to disconnect? I think it can disconnect for only so long as some brave soul will eventually say and be heard, The Emperor has no clothes!. In this case it would need to be the U.S. economy is going to take a good 5 to 10 years to recover and the stock market will be stuck flat, waiting for it to catch up to the hype reflected in stocks. Honestly, I have no clue what is going to happen as we see the next big wave of bubbles burst, Commercial Real Estate.

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