What I’m Observing in Stock Indices

Right Now:

DJIA: At an all-time high

S&P500: At an all-time high

NASDAQ 100: Just below the all time highs of 2000 and late-2015

RUSSELL 2000: Just below the all time high of mid-2015   

I believe that the probability of stocks continuing to move higher increases if the NASDAQ 100 and Russell 2000 break past their all-time highs. The technical move in stocks is ‘confirmed’ if all the major indices surpass their all-time highs.

This also means that if the NASDAQ 100 and Russell 2000 can’t push through their highs, it will be difficult for stocks to keep this recent move going.

Historically:

Markets become increasingly susceptible to bubbles when interest rates are low and money supply is high. This is the environment we are currently in. Historically and intuitively, we are in for an eventual big correction in stocks due to monetary policy. But as long as interest rates hug 0%, we could be in for higher prices in stocks for some time. There is no saying where the top is.

 

My preference is to follow what the aggregate voice of the marketplace is telling me. My core strategy is to buy strength and sell weakness. This puts me in position to capture the big moves in markets. While I acknowledge the fundamentals of stocks, I’m not one for calling tops and bottoms. I’ll let the market do that for me.

 

Anytime I think that interest rates will stay at 0% forever, and that prices are going to the moon, I’ll come back to this quote:

"But I think our ace in the hole is that governments usually screw things up and don't maintain their sound money and policy coordination. And about the time we're ready to give up on what has worked, and proclaim that the world has now changed, the governments help us out by creating unwise policy that helps produce dislocations and trends."

-Jerry Parker