AppId is over the quota
After months of going nowhere fast, the stock market is looking like it wants to go higher. The S&P is now within striking range of summer 2011 highs after hitting a low of 1074 back in October.
Why the sudden change in direction?
First, corporate earnings have been well received. Apple itself had a blowout quarter, getting a very positive market response, and now has the distinction of being the highest market cap stock in the world, neck and neck with Exxon Mobil.
Next, the market senses an improving (albeit slow) economy, with weekly jobless claims remaining under 400,000 for a number of consecutive weeks now. We're also seeing an improved manufacturing picture and consumer sentiment has been improving as well.
Also, there has been considerable technical improvement in the market. Specifically, important indicators that technicians watch have gotten markedly better. For example, in early October of last year, the 20 day moving average on the S&P - that is, the average closing price for the preceding 20 day period - crossed above the 50 day moving average for the first time in a number of months, which was a very bullish development. Additionally, the 20 day crossed above the 200 day in early January, another bullish signal and resulting in a move higher.
We've also seen the yield on the 10 year treasury bond move up from a December low of 1.8% to as high as 2.09 on January 23. This move in yields indicates investors are willing to take on more risk, benefiting equities.
Another key development has been the decline in the Volatility Index, or the "VIX" - commonly referred to as the "fear meter." The VIX has gone from a reading of over 47 in early October to just over 18 in late January. That is a significant shift in thinking, and indicating more willingness to invest in and trade stocks.
Everything I've laid out has resulted in a better market picture, but can it last? Where might the market be headed?
Some will say we are in an election year, and that will influence market behavior. That might be true, but there are always events, some out of the blue, that can impact market performance. So, we pay more attention to what the charts and historical data tell us, with the belief that the market is always looking forward, and charts never lie.
It doesn't really make sense to try to predict where the market will be by the end of 2012; we're more focused on the here and now. But, if the bulls are able to clear the high of last year of 1370 on the S&P, it should pave the way for the market to go even higher.
John S. Hopkins Jr is one of the co-founders of Invested Central. John founded the company in 2004 after spending almost thirty years in the financial services sector. John started out by producing and providing educational training programs for financial institutions and their employees. Hundreds of companies and thousands of employees have used his training materials and John has taken this successful experience and now provides educational training to stock market investors.
You can learn more about John and Invested Central, and sign up for our free stock market newsletter, at http://www.investedcentral.com/
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