A Stock Market That Just
Wants to Move Higher

Throw bad news at this stock market…it doesn’t matter…the assault on Dow Jones 13,000 continues its move ahead.Throw bad news at this stock market…it doesn’t matter…the assault on Dow Jones 13,000 continues its move ahead.

Yesterday was another big upside day for stocks despite a series of what I believe were negative economic news reports.

Bloomberg ran a story saying that a deficit-reduction plan gaining acceptance amongst members of the U.S. Senate would result in the end of preferred tax treatment of capital gains and dividends. This type of news would usually rattle stocks.

The Conference Board reported that its U.S. leading indicators rose in June at a pace of 60% below May. The Labor Department said that initial jobless claims rose by 10,000 in its latest reading. All negative economic news—that’s becoming the usual backdrop to rising stock prices.

Finally, the Atlantis ended the U.S. space shuttle’s 30-year history Wednesday. Where will the 9,000 people who worked for NASA get jobs now? House prices in Titusville, the closest town to Kennedy Space Centre, have already fallen 47% in five years (Source: Federal Housing Finance Agency).

In spite of how poor the economic news was yesterday, the stock market had only one mandate and that was to move higher. And this is exactly how bear market rallies work: bring stock prices higher, lure investors back into the stock market, and give them the false hope that all is well with the economy.

My prediction is that, by the time this bear market is over, a great number of investors will have been lured back into the stock market. As quickly as the bear brought stock prices up, it will bring them back down.

Sure, it’s very enjoyable to see the Dow Jones jumping 100 or 200 points in a day to the upside. But when we see drops of 100 to 200 on the downside, it gets very painful, as most investors play the upside of stocks, not the downside (short selling).

As I have been saying, enjoy the rally while it lasts, as this bear market rally’s life span is limited.

Where the Market Stands; Where it’s Headed:

There’s not much I can say that I haven’t said above. We are in a bear market rally in stocks that started in March of 2009. The rally, although long and tired now, will likely take stocks past Dow Jones 13,000.

In the immediate term, the dual forces of a government willing to go further in debt to spur the economy and a Federal Reserve ready to expand the money supply are overwhelming strong forces for the stock market.

The ramifications of a devaluation of the U.S. dollar, spiraling U.S.national debt, rising long-term interest rates, rapid inflation—the bear market will have us dealing with them on a date soon to be announced.

What He Said:

“Starting two years ago, I was writing how the housing boom would go bust and cause the U.S. economy to suffer sharply. That’s exactly what is happening today. From what I see happening in the U.S. economy, I’m keeping with the prediction I made earlier this year: By late 2007/early 2008, the U.S. will be in a homemade recession. Hence, I expect housing prices to continue declining, soft auto sales, soft consumer spending and a lower stock market.” Michael Lombardi in PROFIT CONFIDENTIAL, August 15, 2007. You would have been hard-pressed to find another analyst predicting a U.S. recession in the summer of 2007. At the time, the stock market was roaring, with the Dow Jones Industrial Average hitting its all-time high of 14,164 in October of 2007.