Will the Markets Continue to Advance?

FinancialSense Market Commentator, Tim Wood, has written an interesing editorial, A Toxic Economy and a Witches Brew.

The opening line of his editorial has been on my mind.

• The equity markets continue to advance out of the January/March lows, commodity prices surge, oil continues to hit record highs...

Yes, I have been concerned with what I am seeing and I have been frequently asking myself "Has anything really changed?" and as much as I have doubted, it's also clear that the equity markets have continued to rise, which is an issue which I had posted quite long ago, If Ze Market continues to rise..

• “During the strong market of the 1990s, most investors who rode the wave ignored traditional ideas about valuation. Some money managers remained invested on the basis of a practical calculation: "If the market continues to rise and I'm not participating, I'll lose my job. But if it falls dramatically, I'll be in the same situation as everyone else." Others were conscious market cynics who thought they could successfully exploit the foolishness of others. Momentum investors didn't need an opinion about valuation. They were consciously saying, "The market may be overvalued-we don't know and we don't care. All we know is, it's been going up, and we're going to invest as long as it does-and get off the train before everyone else." The problem lies in executing the greater-fool theory. If you get off every time the market ticks down and then reestab­lish your position when the market starts to go up again, you're going to get killed, because even rising markets fluctuate on the way up. And if you wait, you risk going down with everyone else.

Yes, if the market continue to rise, am i gonna miss Ze opportunity?

• Should an investor's reasonings to invest and hold a stock be based on that particular stock's underlining fundamentals or should it be based on the prevailing market conditions?

Let me refer back to Tim Wood's editorial again.

• The equity markets continue to advance out of the January/March lows, commodity prices surge, oil continues to hit record highs and the consumer is now pulling back in a big way. History tells us that manipulation ultimately fails and that it typically only serves to make matters worse in the end. Well, when looking at what is physically happening around me, if the technical picture that I now see developing continues to unfold, then the backlash from the attempts to “stimulate the economy” may have now created a witches brew with a not so happy ending.

Mr. Wood reckons that the market is so badly twisted and from a technical point of view, he gave his reasoning based on the technical divergences within the markets.

• ..the chart below I have included the Dow Jones Industrial Average along with the NYSE cumulative advance/decline line. One of the issues that I am now seeing with this rally is that even though price has bettered its February 1st high, this measurement of breadth has not quite bettered that level. This in turn serves as a warning about the underlying health of this advance.
  For those that question the integrity of the NYSE data because of the interest sensitive securities, I have also included in the next chart below the Industrials along with the AMEX cumulative advance/decline line. Here you can see that the AMEX, stock only, advance/decline line is lagging badly. Again, the fact that breadth is not expanding along with the price advance is reason to question the health of this advance.

Rather technical but what I found most interesting was Tim's daily observations.

• Another item that is contributing to the toxic American economy is rising commodity prices and the stagnate business environment that rising commodity prices have caused. Let me give you a few examples. This past week I went to my local lube and car wash. The manager and I were talking while I was waiting on my vehicle to be washed. He told me that a year ago they would do anywhere between 80 and 100 oil changes in a typical day. But with the rising fuel prices, business has dropped to an average of somewhere between 50 and 60. As for car washes, he said that they were doing upwards of 400 a day. At present, business has dropped to between 60 and 100 per day.
  
  Another friend of mine is a boat dealer and sells bay boats and pontoon boats. This time last year if you went by his store, you could hardly talk to him because he was so busy. I remember needing something and literally not being able to get to him. He told me this week that June is his peak month and it was absolutely dead at his store. He said that he counts on the summer sales to help carry him through the winter season. He is now worried about making it through the summer. There was also another local business owner present and he too is also now feeling the exact same pain.
  
  In yet another example, I needed a trailer ball so I stopped in at a truck accessory store. It was also dead there and I quizzed the owner. He too was telling me how slow it had gotten. He said that recently he had 13 employees between all of his sales and installation people. He is now down to one sale person, a secretary, one installer and himself. He said that it is now costing him to keep the doors open. He had a beautiful black 4-door F-250. He said that it cost $170 to fill it up and he had it parked in the shop and is no longer driving it.
  
  Here’s another one. I went to the local mall with my wife this week. She knows the lady that runs one of the shops in the mall. This lady is looking for a job because sales are so bad that the company is not going to renew its lease this summer and will be closing the doors.
  
  In yet another example, I was talking to a lady at the local gym. Yes, I talk with everyone trying to get a feel for things. Anyway, she was telling me that they are now seeing gym memberships declining.
  
  I also know people at one of the local giant home improvement stores. Sales are down and I am being told that they are not refilling positions in an effort to cut overhead. This slow down is not just affecting the small business owner. It is hitting everyone.

And his closing remarks..

• So, on top of the unhealthy stock market advance we have a tapped-out and fed-up consumer. People are without a doubt pulling back as rising prices have choked off discretionary spending. We also have poor business conditions as a result. In the meantime, both commodity prices as well as the stock market continue to rise. If commodities miss their upcoming opportunity to peak, then the fallout from still years of escalating prices will hit the consumer very, very hard and my guess is that that would indeed knock the stock market to its knees. At the same time, I think it is also possible that given what is so far a weak rally by the stock market and the tapped out consumer, both the stock and commodity markets could find themselves on the way down in a much bigger way than most people can currently imagine. The key to these developments lie with my statistical data and the Cycle Turn Indicators. The bottom line is that we have a weak equity rally, rising commodity prices, poor business conditions and a tightening consumer. The price action this summer as we move into the potential turn points are beyond important, and I can tell you now that we had best pray for a top in commodities. Otherwise, rising commodity prices beyond the statistical turn point will set the stage for rising commodity prices for years to come.

The following was posted on the following article, Except for food, gas, April inflation was tame

• Inflation was well behaved in April - as long as you didn't eat and kept your car in the garage.


• "Lower-income families are really getting hammered,"


• Nationwide, food prices are climbing in all categories, including produce, meat, dairy products and grains. In the year that ended in April, bread prices rose 14.1 percent, milk 13.5 percent, and fats and oils 12.3 percent.

Don't eat, don't drive??????

And Mr. Kevin Philips simply calls this as being shambolic and calls it a clear Numbers Racket - Why the economy is worse than we know!

• If Washington's harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.
  
  The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy's overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being "anchored" as food and energy costs begin to soar.... (do read the rest of his editorial!)

How?

For me, I need to address if there has been any changes fundamentally in the market.

Should I believe and trust my own reasoning or should I revaluate my mindset and reasoning just because the markets looks like it could continue to move higher?

How my dearest MooMooCow?

Has anything really changed?