Thursday, April 7, 2011

Don't Bother Looking at Stock Charts Today - They're All Moving Higher

I went to hear Mary Ann Bartels yesterday. Mary Ann is the chief technical analyst at Merrill Lynch, and a very good one, in my opinion.

Mary Ann has also been at this game for a while, so I respect her opinions since they are tempered by experience. Put another way, Mary Ann is not one to get carried away with either enthusiasm or pessimism, but rather lets her analysis of the markets guide her thoughts.

Mary Ann's comments were almost entirely bullish. She noted that all of the markets - stocks, commodities, high yield bonds - are all in confirmed up-trends. Even Treasury bond prices remain in a reasonably strong up-trend, despite the back-up in rates this week.

This synchronization of the global markets is something I discussed earlier on Random Glenings. Normally markets don't all move in the same direction, but not right now: the slope of the line might vary, but most the directions are up.

Ah, I know what you're thinking: Markets don't move in one direction. If everyone is on board with a market or particular stock, that's the time to be heading for the exits.

And it's true, there is clearly a dangerously high consensus that stock prices are headed higher. The most recent survey done by the American Association of Individual Investors shows that just 15% are bearish - yikes!

Problem is - and this was noted by a hedge fund manager at the meeting - it's hard to fight the strong positive tone to this market.

As I listened to Mary Ann, I think the real issue is what's driving global markets, which is the world's central banks. The Fed, of course, has been a hugely positive force for all markets, and now the Bank of Japan is helping as well.

Meanwhile, the economic fundamentals remain weak. Housing looks poised for another dip lower. Unemployment is slightly better, but I don't think a 9% unemployment rate is anyone's target. Corporate earnings are good, but mostly because of cost-cutting and outsourcing; we truly are in the midst of a jobless recovery.

But for now, I think you have to stay fully invested. The time to get worried will be when the Fed starts tightening policy, but I don't think that will happen for some time. True, there is the possibility of higher oil prices choking consumer spending, but there aren't any signs of this just yet.

In other words, we're in a liquidity-fed bull market, but once the Fed removes the juice it will be time to scramble to safety.