In comparing charts from the summer of 2010 and one from today, I am having a difficult time in finding any distinct differences. Since I do not try and predict markets, I use history as a guide as to what we are experiencing; which is the corrective action as we did last year.
From a technical analysis standpoint, the correction amounted to 35% of the previous advance and fit the parameters often cited by technicians that corrections account for 1/3 to ½ of the previous advance.
The results of the correction then set the stage for the next advance from the 1010 low in July 2010 to the April 2011 high of 1370. Is the current “Summer Swoon” setting up for another advance like 2010? Who really knows? If it does, then we could see 1400 to 1450 on the S&P with or without QE3.
I am going to digress for a moment and express my feelings about QE2. Where did all the money go? Can anyone in the general public really tell me that it affected them in any financial or personal way? Employment was supposed to drop below 8%, not go up to 9%. The only effect I can see is inflation and cheap dollars. Is a QE3 going to help?
This reminds me of the old joke about two business school graduates in Central Texas, who after graduation, decided to go into the hay hauling business. After about three months in their venture, they realized something wasn’t working. They returned to their college professor for help and explained to them their business model. They told their professor that they would buy a bale of hay for $1.00 and sell it for 50 cents. After a few minutes of deep thought, his answer was to increase the volume or sell more. Unfortunately, this sounds too familiar of our current administration doesn’t it?
The economy is slowly recovering without QE2 and markets like they did last year are reaching an oversold level based on fundamentals. The long term investor should take advantage of this buying opportunity.
Thanks for reading…