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Tuesday, January 5, 2010

A Strong Start For the US Stock Markets?

Sure enough. But could this mark something deeper than just a regular New Year's fever? It might be...

On the first trading day of 2010 the main US indices finished as follows:
  • S&P 500 - 1133, Change +17.89, +1.60% 
  • Dow Jones Industrial Average - 10584, Change +155.83, +1.49%
  • Nasdaq 100 - 1887, Change +26.39, +1.42%

About 2-3 months ago there was a post named "Bullish markets climb a wall of worry" which presented some technical insight on the market movement and all the talks about the "needed" correction. Then the SPX went around the noted level of 1040 and started going up again. So today we are still hearing all the correction talks while the markets continue to climb. This is an interesting fact alone.

Another interesting point to note is the last December movement of the stock markets. Till that month whenever the US Dollar traded lower to the Euro, the higher the US stock markets went. And the more important - whenever the Dollar traded higher, the crude oil AND the US markets went lower. The last December broke that correlation. The Dollar made one of its strongest movements against the Euro and the US markets didn't fall! Interesting enough... Add to this the fact that the Crude oil got priced higher even as the US Dollar became more expensive.

This could mark the beginning of a breakage of more than two years of strong negative correlation between the US Dollar and the US stock markets. If that happen to be the case, there could be no such deep correction of the stock prices in the near future that most people seem to expect.

In the mean time the economy could continue to improve. This in turn will bring higher results in the company reports which to justify the higher prices and calm the mass investors. Still the things don't seem calm enough. But if they were, there wouldn't be any wall of worry to climb. If there is no such wall, will this be called a bull market?.. :)

There will be corrections, of course. But the December movement showed the stock markets could have the strength to hold on.

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