Why does the market go up?
The low volume grind higher continues in equity markets. It's frustrating all the bears and energizing the bulls. It's gotten to where it's almost politically incorrect to be bearish. We've actually seen this before. Twice, in fact, in the last 10 years.
So why does the market go up in the face of all of the negatives? Simple. There are more buyers than sellers. That's it. It's just that simple. If buyers outnumber sellers, price rises. If sellers out number buyers, price declines. So perhaps the real focus should be on what motivates buyers and sellers, and when the pendulum may swing in the other direction.
In a more normal market, you'd expect price to earnings ratios and dividend yields to influence large number of buyers and sellers. Although that still matters to some, I believe they are in the minority in the current bubble environment we're in.
What matters today, and what drives the majority buyers and sellers is momentum and technicals. It's all about price direction. This is the third time since at least 1995 that we've seen this phenomenon at work. It may not be the last.
This one will end just as the others with a bubble created simply by price momentum. The key is to know what pricks it and gets the ball rolling in the other direction. It could be the Fed beginning to tighten, although I doubt it. Perhaps it'll be rising long term interest rates as investors back away from our debt causing bond prices to fall and rates to rise. Or perhaps it'll be some large traders deciding enough is enough and they begin to sell. I can't be sure tonight what the catalyst will be, or when it will appear. I simply know that it will.
How do I know? Because all bear markets end with real value showing up in the market place. By that I mean 6% dividend yields on broad stock indices and single digit P/E ratios. We haven't come close to that yet, but I think we will before the secular bear is over.
But for now, and until further notice, the momentum is up. It WILL change, and it could be soon. 1160 is as good a place as any. When it happens it will be unmistakable. That's because most of us recognize a rerun when we see it.
So why does the market go up in the face of all of the negatives? Simple. There are more buyers than sellers. That's it. It's just that simple. If buyers outnumber sellers, price rises. If sellers out number buyers, price declines. So perhaps the real focus should be on what motivates buyers and sellers, and when the pendulum may swing in the other direction.
In a more normal market, you'd expect price to earnings ratios and dividend yields to influence large number of buyers and sellers. Although that still matters to some, I believe they are in the minority in the current bubble environment we're in.
What matters today, and what drives the majority buyers and sellers is momentum and technicals. It's all about price direction. This is the third time since at least 1995 that we've seen this phenomenon at work. It may not be the last.
This one will end just as the others with a bubble created simply by price momentum. The key is to know what pricks it and gets the ball rolling in the other direction. It could be the Fed beginning to tighten, although I doubt it. Perhaps it'll be rising long term interest rates as investors back away from our debt causing bond prices to fall and rates to rise. Or perhaps it'll be some large traders deciding enough is enough and they begin to sell. I can't be sure tonight what the catalyst will be, or when it will appear. I simply know that it will.
How do I know? Because all bear markets end with real value showing up in the market place. By that I mean 6% dividend yields on broad stock indices and single digit P/E ratios. We haven't come close to that yet, but I think we will before the secular bear is over.
But for now, and until further notice, the momentum is up. It WILL change, and it could be soon. 1160 is as good a place as any. When it happens it will be unmistakable. That's because most of us recognize a rerun when we see it.
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