The Big Picture – Bullish

Posted by Victor Adair via

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This market wants to go up: My theme the past few weeks has been, “This market wants to go up,” and it was up again this week with the DJI up 100 points (Toronto up 230 points) to a new 3 month high. There have only been 3 higher weekly closes on the DJI since 2007…and if it had closed 30 points higher this past Friday it would have been the highest weekly close since December 2007.

Ed Note: Transcript continues below, or click on image for BNN Segment: 

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Low volume: Summer doldrums, European vacations and the Olympics contributed to the lowest weekly volume in the DJI for 2012 YTD.

Since the June 4 Key Turn Date: (a date that saw several Key Weekly Reversals) the DJI is up nearly 1200 points, the TSE is up nearly 700 pts, the CAD is up 5 cents and the higher-beta AUD is up 10 cents. Since the October 4, 2011, Key Turn Date (a date that saw a very rare and very powerful Monthly Key Reversal in the DJI) the DJI is up 2,800 points.

Climbing a Wall of Worry: I’ve written about this market “Climbing a Wall of Worry and there has been a lot to worry about (isn’t there always a lot to worry about?) One example of the worried investor psychology is the torrent of cash going into the perceived “safe haven” government bonds at lifetime low yields…even while governments are issuing record amounts of debt to cover their deficits…deficits that seem likely to continue for years…what self-respecting bond vigilante could have ever imagined a scenario wherein bond yields were this low while governments issued mountains of paper to fund trillion dollar deficits?

Psychology: Within the last 5 years investors have been hit with crashes in the stock market, the commodity market, and, in the United States, the housing market…it’s no wonder that investor psychology…particularly among the boomers… is now cautious…fretful…perhaps even fearful that the recent stock market gains could be gone in a heartbeat…and thus the rising market is subject to nasty short term breaks as cautious optimism is undercut by the latest wave of fear.

What’s changed? The European financial crisis has probably been the market’s biggest, most immediate worry…it was easy to imagine it spinning out of control with contagion effects clobbering all markets. Rightly or wrongly it seems as though the fear of a European inspired financial panic is diminished…and markets, with the weight of that worry reduced, are able to rise.

Trading: One of the notes taped to my trading screens says, “Are you trading what you think the market should be doing…or what it is doing?” I’ve thought about that a lot lately. It seems impossible to NOT have an opinion about what the market should be doing. When I think back to the times when I stayed with a losing position too long it was almost always because I thought that if I gave the trade a little more time then the market would “wake up” and come around to my point of view…in hindsight, not a good trading strategy!

These days I still have opinions about what the market should be doing…but, if it is not doing what I think it should be doing then I wait…until it does do what I think it should be doing before I make my trade…I anticipate a trade and then wait for a confirmation that the time is right to put on the trade.

I remain long the US stock market indices in my short term trading accounts.