Breakout?

US stock markets are now very close in energy and sentiment to the summer of 2004. There had been a good rebound run for a year and then a slowdown. The 2CS ran up to about 55 in April  2004 and then down to 110 in  May (2cs inverted to price). The bears were roaring  about the Iraq war and unemployment  like now.  Then the markets took off and broke out to new highs in early November on the run to 2007.

 

This year has been very similar. We can say and agree upon whatever we think about the wretched economic and political fundamentals, but if our interest is gaining profits in markets to benefit those we love (our job, as it were), then we must watch and listen and act.

 

Sentiment works best in trading ranges, large and small. Currently sentiment is at levels which can turn markets south during bear market rallies. But upside breakouts can and have and do occur under these same conditions. If you remember, I brought this up in early January of this year when the 2CS fell below 70. That's lower on new market highs than one typicaly sees in bear market rallies. To be sure it was extreme enough to turn the market down for a month, but the rally from 2008-09 wasn't killed. And now the market is making new highs in some indexes and countries.

 

We needn't look too far to see why markets might go up from now. Money supply has exploded nearly worldwide, but much of the money is sitting nervously on the sidelines and biting its nails. We can lament this and the possibilitiies of new market "bubbles" as a result, but this is what central banks and governments want to happen. It's "our duty" to help make prices go up and gain profits on it if we can. Cash in US banks is earning nothing.

 

Keep in mind always that this is my financial diary. I am not an advisor, and I'm not selling any financial product or advisory product. What I say and do is for my own family's accounts, and I am under no compulsion to be complete or fully forthcoming. These are just my thoughts and opinion on my way to deciding what to do.

 

This week I have sold off some of the leveraged high yield closed end funds and those trading at very much of a premium to net asset value. I wanted to raise some cash so I could take advantage either of an upside breakout or a decline. I am buying back some US oil and gas trusts on the sharp decline this week. They are now paying 8-9% again.

 

If the equity markets break out on top here, we could see  institutional and private money flood into the markets and send them much higher for years. We would not want to miss that no matter what our opinions and feelings about the current world situation. Don't forget that the banks are loaded with cash, and there are trillions of cash in investor US money market funds.