The 2 Forces Driving the Current Stock Market Boom
Stocks are flat as a new week begins: The only movement to speak of is in the Russell 2000, down about a third of a percent.
The S&P 500 sits at 1,865, about 25 points below its all-time closing high on April 2.
“Last week was very one-sided,” says Jonas Elmerraji of our trading desk. “In just four trading sessions, the S&P 500 gained a whopping 2.71%.
“The big question on my mind right now is whether last week’s leg up was the latest trendline bounce. If so, it’s the first one that didn’t violate support on an intraday basis, and it’s the first one that didn’t break out of its short-term downtrend within 1% of our support line.
“In other words, it doesn’t look like a bounce yet — more like a bull trap.” Jonas’ STORM Signals readers continue to sit on the sidelines, as they have for a month now.
“Every bull market is made up of different ingredients,” says Paul Mampilly — our newly named investment director here at Agora Financial.
That doesn’t sound like any great revelation — until someone tries to sucker you in with a “surefire” market indicator.
Beware, Paul warns: “Marc Faber says that the 2014 stock market crash is going to be worse than the one in 1987. The U.K. Telegraph has put out a top 10 list of warnings signs of a new market crash in 2014.
“The gloomers are competing to find a way to show you the market is overvalued using newfangled methods with names like CAPE — which stands for ‘cyclically adjusted price-earnings,’ also known as the Shiller P/E.
“The optimists have struck back with one of their own,” says Paul — the rule of 20. “This method of valuing the market says you take the S&P 500′s P/E ratio and add inflation. If this magic number is below 20, you buy. If this number is above 20, you sell.
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noun ˌes-pə-ˈrän- tō ˈmə-nē
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noun ˈpe-nē ˈstäk
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