The Dow is now positive for the year, and is nearing the upper (ceiling) portion of the trading range it has been stuck in since early August. If corporate earnings remain strong and Eurozone fears can be contained, we may very well see the Dow break out of this range and trade higher. How high it could break out to I am unsure of, as I am no technical expert. I would assume that if market conditions remain favorable, the Dow could easily break through its 200 day MA of 11,968.
Aiding this run would be the notion that on a price to earnings basis, stocks are relatively cheap. The S&P is trading at 11.1 times forecast earnings for 2012, compared to its 50 year average of 16.4 times reported income, according to data gathered by Bloomberg.
It would still be advisable to remain cautious at this time even given the apparent discount that the stock market is offering investors. This discount is most likely a direct reflection of the volatility and instability in the markets created by a stagnant economy, the Eurozone debt crisis, and the U.S. debt crisis, among other factors.
The VIX just broke down from its technical trading range it has been in since early August, which may forecast further downside in the VIX, and upside in the market.
In the meantime, we will look to the results of the G 20 meeting taking place in Paris tomorrow for an idea of where the market will be headed next week. Let's hope for a cooperative plan to come out of the meetings; one that will account for a long term reduction in the debt of the European nations in crisis. A plan that would allow this bull market wearing a bear suit to throw off its costume, rear its head, stomp its legs, and head north.
(Although I still think it is inevitable that Greece defaults).
I hope everyone has a wonderful weekend. Until next time.
Cheers,
EZ
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