Everyone can see breadth and strong leadership, which are the signatures of a new bull trend. But what justifies this trend? Expectations of strong corporate earnings, or expectations of a debt ceiling settlement?
The market expects Congress to raise the debt ceiling. The question is how much and how long before it must be raised again... and in return for what budget-tightening concessions. This is the real uncertainty. However, the market has become highly Pavlovian, and we get a "buy everything now before it is too late" type of reaction... Buyers will attract more buyers and so on. This is the way to generate powerful trends.
Still, I have doubts that pile up into a private wall of worry for me to climb each day. My simple doubt is that today's Pavlovian market will eat the meal before it even makes it out of the kitchen. What will happen when dinner is finally served? The whole world is hanging on this debt ceiling matter. Can this "news" really move the market?
First, the market does not expect GS, MS, BAC and JPM to profit from the new debt issues, because they did not participate in the last general run-up. So, which among the biggest US banks will benefit? That aspect looks strange to me.
The second point is the failure of gold futures to show that large players believe in an outright large monetization. Moreover, traders continue to accumulate the US$. Taken together, this does not point to a market that is preparing itself for the mother of all monetizations.
Can gold really break through its past resistance? Last time it tried, it badly failed.
I believe that the debt ceiling issue is about "control" and then next year's elections. Those who control the money will win the elections. I therefore believe Congress will try to keep control over the money and will only allow a partial and/or time-limited resolution to the debt ceiling issue.
On a more practical issue: when the market is pulling back while in an uptrend, I like to search for stocks that still attract money during the pull-back. There is no better way than using the "Positive divergence stocks with AB."
http://www.effectivevolume.com/co...rgence-with-AB
In this list, I like
- Those stocks that are either pulling back slightly but in a clear uptrend such as CE, ICE, SQM, AKS
- Those that are close to a support level but still attract money: BRK-B, PEG, HUM, GIS, PNC, ATI
I usually ignore those that are below strong resistance: CS, VOD, WFC, SID, BALT
Finally, Eric will post a weekly review with interesting patterns in materials/energy/fertilizers.
