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Have the Markets Already Made Their 2005 Highs? - Money Matters for 12/2/05
Yesterday, I commented on the new highs for the Dow, Nasdaq and NYSE. Oddly enough, these highs were reached on the first day of December, rather than near the end of the month, which has been the norm recently.
While I don't put a great deal of faith in most chartist theories because I am more of a political-fundamentals theorist, the charts are screaming for a correction.
Since mid October, the Dow has been on an incredible tear, adding nearly 800 points or 8% in just over 6 weeks. Not to be outdone, the NYSE Composite picked up 550 points for a near-8% gain.
Most impressive of all, the Nasdaq, in roughly the same time span, has risen by nearly 250 points or 12%. It stands today at its highest level in more than 4 1/2 years.
All three indices, since mid-October, blasted through both their 50 and 200-day moving averages and have to be considered overpriced on the whole.
At the same time the stock markets are zipping skyward, gold, silver and platinum have headed to historic highs as well. Platinum crossed the $1000 mark today, making it nearly twice as valuable as gold.
While I am not suggesting that a major sell-off might occur before the end of 2005, I am saying that there isn't very much more except froth to be gained for the rest of the year. The idea is supposed to be to buy low and sell high, and investors have to be looking at taking some profits off the table on the heels of such an impressive rally.
Economic news has been generally upbeat; the recent round of earnings reports were solid, though not overwhelming, but the key to sustainability lies firmly in the hands of American consumers, who now account for more than 70% of the total GDP.
Between high gas prices and a potential explosion in the price of natural gas (which continues to creep up - once again closing at over $13/1000btu today), Mr. and Mrs. Average American are may be in for some economic shocks this season. While heating season is just warming up (sorry about the poorly-formed pun), bills won't begin to hit households in force until January or February. That's when the real screaming will begin and it won't be pretty.
Being that Americans are serially-short-sighted, expect the Christmas shopping season to be relatively robust. People just won't put off gift-buying to pay for necessities like heat and gasoline. Just like we buy big cars and trucks, we'll certainly want to have one last good holiday season before paying the piper.
Stock prices may indeed improve from here, but not by any impressive amount. If the Dow gets over 11,000 and the NYSE tops 7900, I'd be heading for the hills in short order. The one exception may be the Nasdaq. Historically, tech has outperformed traditional stocks during rough periods, and if the first 6-9 months of 2006 are going to be difficult, the Nasdaq, laden with techs, small and mid-caps, looks like a safe haven for stock owners.
This weekend will be of great interest to Wall Street as shoppers should be hitting the malls in big numbers. After this, there are only two more weekends for shoppers, but, as far as can be seen, retailers are resisting deep discounts. If this weekend's numbers are short, look for two things: 1. Big deals at major retailers, and 2. a pretty big sell-off on Wall Street.
With only 23 days left until Christmas, the US economy is going to show whether it ends the year with a yell, a yawn or a whimper.
Have a great weekend.
Dow Jones: -35.06; 10,877.51 close
NYSE Advancers: 1727
Nasdaq Advancers: 1620
NYSE New Highs: 194
Nasdaq New Highs: 178
Gold: +0.70; 507.00 close
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