2 Year Anniversary

Three year weekly chart of the S&P 500 showing 2008's market collapse and our subsequent rally off of the lows printed two years ago. Since these lows we've seen guru's, pundits, print writers, speakers on CNBC, the financial press and many investors speaking out every time the market has paused or corrected.  Most of the time they proclaim that the end is nigh for stocks.  This time with the events in Libya and the spike in oil prices is no different. While each time these folks may have been at best right for a very short period of time. Investors who have sold out in each rally have left significant money on the table.

Think about this. During the past two years the market has shrugged off concerns among other things  government finances at every level, mounting national debts both here and overseas, an ongoing housing crisis, rising commodity prices with the subsequent threat of inflation, a General Motors bankruptcy, concerns about the financial industry, higher oil, health care reform, financial crisis in many small European countries, as well as the current unrest in the middle-east.

Why with all this gloom have stock prices continued to go up? I think for two reasons: 1) The economy has been improving for over a year on its own and 2) the Federal Government's commitment to do what it has to do {regardless of ultimate cost} in order to stimulate that same economy. At some point the stimulus will go away. That in my mind will actually be a good thing because it will come at a time when the economy is strong enough to stand on its own.

Right now markets are correcting by time {trading range} as concerns over the sudden rise in the price of oil are being factored in. So far there is scant evidence that what we are seeing at the pump is acting as a break on the economy. If that happens then stocks could give some of their gains back.

Guess what though! Stocks might sell off anyway in order to absorb the monster returns we've seen since last September. Nobody knows the answer to that. We've recently published our views as to where some of the tripwires are to both the downside and where we could break out from here. We've also chronicled how we've become a bit more defensive in the past few months.

Let me say though here that I think as long as this situation in the middle-east is contained and as long as no other unexpected event washes on the shores, than I think that any correction of time, correction of time or a correction of both will set up for a buy opportunity at some point later on. Stocks may ultimately go to sleep for some period of time. By that I mean they may just meander around in a 5-10% range for a while as the market digests these gains. That sort of basing correction could end tomorrow or it may go on for a longer period of time. Last year stocks topped out in April and basically went nowhere until the fall. In 1994 when the Federal Reserve started raising interest rates, stocks basically traded flat for a year. But when they took off they never looked back for the rest of the decade.

Based on what I currently see I think that ultimate resolution would be a move to the upside at some point albeit perhaps after a correction. All that money on the sidelines I think will want an excuse to come back into the market. In that regard I'll refer you back to the shortest research report ever written:  The guys printing the money want you to buy stocks!  Someday they won't care so much if you do.  But for now that's where they want your money to go.  Remember that.

*Long ETFs related to the S&P 500 in client and personal accounts.