We’re not the only ones to be skeptical of this bull market.
It seems highly unlikely that continued Federal purchasing of Treasuries and suppression of yields will increase borrowing and generate sufficient economic growth to allow wages to increase.
This current scenario of easing has seen income for many working-class people – the ones who have little or no equity market exposure – fall precipitously. Study after study shows that quantitative easing does not help real wages. Those who depend primarily on income from their job to live are feeling the brunt of this situation the most.
We know it. We see it. We feel it.
And yet this open-ended round of easing is set to continue, thanks partly to some positive, yet always dubious, economic data releases…
But facts are facts. The market is climbing, and there is always money to be made when that happens.
But be warned: We’ve just experienced one the biggest stock market ‘head fakes’ in history and few are talking about it.
These new all-time highs were not easily anticipated given a seemingly clear bearish technical argument which spoke to the contrary.
Investment and retirement accounts are back on the path to recovery, but prices are either at or near intrinsic value in many cases or traveling beyond them to ‘over valued’ territory.
In the chart of the Dow Jones Industrial Average (DJIA) below, there are several important things worth noting. For starters, the old 2007 high pointed out on the left-hand side was breached back in March of this year. We are discussing the “breakout” now because we needed to confirm additional price candlesticks above the previous market high. With clear separation we can safely predict that any bearish summer pullback will serve as a healthy test of the breakout point which is now support.
With Recent Breakout, Dow 14,000 Could be Revisited
Another thing to notice is the “Rising Wedge” technical pattern outlined in red above. This is the head fake we mentioned earlier as the 14,000 level resistance seemed to justify a completion of this bearish pattern and an eventual “deep” pullback in the major index.
But a funny thing happened. The market didn’t collapse…
Thus, the pattern above should now be considered invalid with the breakout occurring to the upside.
As we drift into uncharted territory it would be wise to remain cognizant of the fact that a pendulum which swings too far in one direction is ultimately unsustainable. In our opinion, investors should be both aware and protective should market headwinds begin to manifest.
And so for the time being, the era of irrational market exuberance remains alive and kicking.
P.S. Check out our comprehensive financial newsletter, Investor Playbook. It uncovers “under the radar” investment opportunities often spared by problems in overall markets.