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Market Outlook

The popular averages finished to the upside on Friday, however off the highs of the day as November options expired. The Dow Jones Industrial Average and S&P 500 again achieved all-time closing highs. With a lack of domestic macroeconomic news, most of the inspiration may have come from overseas. The European Central Bank pointed to a need to raise inflationary expectations by creating new money. The People’s Bank of China cut some one-year loan rates. Meanwhile, the prices of crude oil and gold rose on Friday.

   Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). Following an all-time high reached on September 18, the price retreated into early October. After a rocky attempt to rebound, the price plummeted into mid-October. Roller coaster moves on October 15 & 16 accompanied by heavy trading volume and a high volatility (VIX “fear”) index may have marked a washout of panicked investors who had been advised by pundits to flee the market. Instead I viewed that as an opportunity and switched my outlook arrows back to green.

   The October 21 spike rise above the 200-day moving average was most encouraging. After a retreat the next day, the price jumped on October 23 & 24 to nearly tickle the 50-day moving average. The sharp move above on October 28 may have signaled more clearly that the cool weather bull has already been unleashed. The recovery to a new high on October 31 after a vicious six-week trough, vindicated my decision to merely paint my outlook arrows yellow rather than red during the slide, and switch back to fully bullish right at the market bottom. The string of new highs has provided confirmation.

   The early autumn dive and rebound may have caused heads to spin. Those who become especially dizzy often get flushed out at market lows during Octobers. This may have caused a great many Baby Boomers (b. 1946-1964) and their elders fearful for their retirement nest eggs to now be sitting in fixed income investments that pay next to nothing. Those who sold stocks recently may have done so near another typical October market low. Now they are sitting on a horde of cash that could continue to fuel the usual extended rally during the cooler half of the year.

   Meanwhile, the Millennials (b. 1982-2004) appear to have started to gain interest in stock market investing, especially in companies with innovative 21st century products. I may be very slightly older than the Boomers, but I see opportunities more in the manner of the young adults.

   Normally there must be an emotional component to set up a meaningful bottom. Fear of the spread of Ebola might have been that scare factor. That particular concern seems to have abated in America. Meanwhile, investors may have started to realize that the end of quantitative easing implies a steadily improving economy. But let’s not automatically credit or blame politicians, as some pundits are wont to do in hysterical fashion. The current intense polarization of political opinion often blinds Americans to what really matters for their investments. We as consumers, workers and business operators are collectively far more influential than government, which is usually more reactive than proactive. Let’s keep performing well for our own benefits and that of those around us. It’s a collective process, even though self interest may provide the spark. Enjoy your weekend.

DISCLAIMER: Our commentaries are provided as general information and not investment recommendations. You are responsible for your own investment decisions. Our opinions are based on historical research and data believed to be reliable. There is no guarantee that results will be profitable. We are not responsible for errors or omissions. We may hold positions in vehicles that are mentioned.

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