After a week of uncertainty the Dow Jones Industrial Average, an exhibition of the 30 strongest American outputs has made its way back to safe grounds. In not even a week since the deviant side of the market sunk 7%, it has taken back 650 points. This a blunt recovery from January; which saw further Fed tapering, lackluster US manufacturing data, less than stellar numbers coming out of China and increased fear as catalysts for the drop.
The over-concern of analysts and writers who seem altogether uncertain in their predications of when a ‘correction’ or pullback may occur are most likely a symptom of a spoiled investment crowd that has seen their equity portfolio soar over the last year. One of the issues has been the painful overuse of the term ‘correction’ in the financial media – the word has been so beat up that it seems neither those using it or reading it are really clear on exactly what it means.
Mountain out of a molehill – The issues that have been highlighted as reason for such correction rarely are. IE Syria, Fed talk, fiscal cliff, budget negotiations, etc – just some of the themes over the past 6-10 months. The beat goes on. Emerging markets have recovered for the time being, but their most recent flash flood is a sign of what’s to come. These little events are not what will cause a REAL correction – the collective strength of all of them will be, but not at the moment…
Understand the Paradox – The volatility that we see matters, but it doesn’t matter a whole lot yet. Every issue with real unemployment, diluted jobs data, weak debt, obstacles for business owners, etc – it all matters, but not until confidence drastically changes and that hasn’t happened in current trading. The emerging markets have a substantially weaker infrastructure… lower quality companies and traders/investors than we do domestically… making them a little more edgy. So, it’s all serious business but not in the short term. Sentiment is still strong, this market marches forward and climbs the wall of worry until that worry gets too overwhelming.
Up next – How the market behaves around 15,700 into 16,000’s. A break of the high of 16,000 is bullish for the first quarter of 2014 and will likely be accompanied with positive or no news. Fluctuation within 15,000’s tells you confidence is lukewarm and investors are taking a wait and see attitude. A move back down to 14,000’s will only be accompanied with a major event or something substantial that strikes Fear rather than the usual trivial matters.
We’ll continue to stress the strong support at $DJIA 14,600-14,800. If it begins to flirt near that number, watch every closely. As far as we’re concerned, a break in the all-time high is not likely in the near-short term, but a steady move towards that level will be a good selling point for those who can’t take the volatility and stress the market will continue to put on over the coming months.