Sunday, November 8, 2009

The "uneven" recovery and the road ahead...

I believe that for the remaining of this year and moving into the next, we will see "uneven" recovery in different parts of the economy and possibly a range-bound market with an upside bias towards the end of next year.  What does this mean to you?  It means that if you have been riding the trend up and enjoying either a good return or a good recovery to your beaten-down portfolio, you will probably won't been seeing that any time soon.  In fact, the market has gone up approximately 60% from the March low.


For the remaining of this year, some houses are looking at these levels for the S&P500:


  • 1,000 - 1,050 (ML)
  • 1,100 (CS)
At 1,069, we are right smack into it.  The positives and negatives and the case for a range-bound market:


Positives:
  • Earnings seem to be holding up thus far but the suspicion is that companies are retrenching people and cutting cost to produce the best possible profit figures, not a general improvement in the overall economy.
  • CaseShiller Home Price Index also rose for the 3rd consecutive month.  That is where it all began and problems are not solved yet but we could at least say that housing is bottoming.


Negatives:


  • A high unemployment rate and we are not going to see it go away soon if history is of any gauge (see post by my advisor mentor -- http://createwealth8888.blogspot.com/2009/11/how-long-will-it-take-for-job-market-to.html).  As the US economy is 70% driven by consumer spending, the high unemployment figure in the US paints a bleak picture of cautious and limited consumer spending at best.
  • the consumer confidence is likely going to be an on-going problem due to ongoing contraction in employment and a worsening outlook for job prospects.
Therefore, we need an effective strategy to trade a range-bound market if it is true.  What are your best strategies for maximizing profits in a range-bound market with an upward bias?  Which market will you invest/trade and which instruments will you use?

1 comment:

Wealth Journey said...

Nice blog! :)
I've added you to my blog link.