New Highs For Stocks Or Likely To Fail?

November 9, 2009

The stock markets keep moving higher and higher and higher. I haven't really been able to figure out why for from a fundamental perspective, but there is no shortage of reasons when you listen to the Wall Street analysts and traders.

Some think the economy is off to the races again, which I don't buy. Others believe fund managers are in a chase for performance. In other words, they are just buying because everyone else is buying and they have to keep up. And the higher it goes, the more they have to buy. Well, we all know how these things end.

From a technical perspective, the market has been in a solid trend higher over the last 6 month. Just recently the market broke below the major trendline for the first time. It sure looked like this market was headed much lower and quickly. However, it came roaring back and it is close to making new highs for the year. That all sounds great for the bulls, but there are still problems.

This market has been moving higher on less and less momentum. The biggest caution sign has to be lack of volume on rallies. The overall volume for the last 6 months has been anemic, but the volume increases substantially when the market declines. Something just isn't right here. This market will eventually drop sharply, but the question is when.

The plain fact is that this is a liquidity driven market and it could stay that way for a prolonged period of time as the Obama Administration and the Fed are flashing a huge green light for the market to move higher. The folks on Wall Street are not going to fail to exploit this opportunity after a rough year in 2008. It is time for them to make money again and I have a feeling they will make an obscene amount.

Currently, the market needs to test the previous high and see if it can hold above it. A rejection on a poke above 1,110 in the S&P could bring the sellers heavily back to the market.

You can also view more of my updated comments on the commodities markets at Commodities.About.com.