Just a couple weeks ago it appeared that the markets were likely to slip into another recession, the Euro was on a path to collapse. However, the market has rallied over the last 2 weeks suggesting that the market is betting that we are not headed into another recession, and the Euro is not going to collapse. However, there are still significant headwinds facing markets around the world:
1. European debt crisis (Portugal, Italy, Ireland, Greece, Spain).
2. US Housing Market
3. Bank Mortgage Fraud
4. US High Unemployment
5. Chinese Banking (click on link to see story)
6. Chinese Real Estate Bubble? (click on to see video report)
The chart below indicates that market sentiment has indeed made a marked shift towards positive gain. However, the long term trend is just now beginning to level out. Whatever one does, do not buy the rallies. Wait for significant down days (at least 2% drops) for entry points, and do not over commit. I believe the market will tend to trend upward for the time being, but it will continue to be highly volatile as long as interest rates remain near zero.
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| Chart 1 - S&P 500 Sentiment 10/14/2011 (click on chart to enlarge) |
The chart below is also indicating that we have not signaled a market crash yet as it did in 2001 and 2008:
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| Chart 2 - S&P 500 Market Crash Signal (click on chart to enlarge) |
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