Thursday, August 9, 2012

Feeling the Pain


 


The stock market has recovered nicely since its May swoon, and is now closing in on a 2 year high. After crossing its 200-day moving average in early July, market technicians say conditions are generally ripe for further gains.

This truly has been the rally that analysts love to hate.  I have read countless articles about Impending Doom for stock investors, yet the market continues to edge higher.

Here's how CNBC described market conditions this morning:

While many investors fear the market is ignoring reality, some technical analysts say stocks could continue to move higher as the market looks past what worries it.

The unresolved European debt saga, the so-called U.S. “fiscal cliff” and the tension surrounding the U.S. presidential election are all wild cards for the market.

Slowing corporate earnings and the sluggish U.S. economy and global growth, in general, are all valid worries. Yet stock prices are riding a wave of momentum to near four-year highs, even as few investors can be found that love the stock market. 


Now, to be sure, there are reasons to be cautious about the market.  Much of the recent advance has been concentrated in just a few sectors, for example, and mid-cap and smaller stocks have not advanced as much as larger stocks. 

Moreover, the Dow Transport Index - historically a good indicator of economic and market activity - has been moving lower even as the broader indices have been moving higher.

Yet if there is one constant on Wall Street it is the fact that market tend to move in the direction that the consensus does not anticipate - the so-called "pain trade".

With stocks moving higher, and bond prices falling as yields ticking up slightly from historic lows, investors positioned for financial Armageddon are feeling the pain right now.

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