Despite an early whip-saw move, the markets slowly but surely gained momentum yesterday and ended up closing higher as the chart above (courtesy of MarketWatch.com) shows.
It wasn’t a huge move, but it solidified the price position above the S&P;’s widely watched 200-day moving average (currently at 1,115). Contributing to upside momentum were better than expected reports regarding private-sector payrolls and improvements in the nonmanufacturing part of the economy.
On the menu for today will be same store sales reports from major retailers as well as weekly figures about jobless claims.
Changes in trends can tell you interesting stories. In Deflation and Double Dip Recession (July 4, 2010), I talked about dividing the investment world into five major asset classes. At the time, given the overall economic outlook not just here in the U.S., but worldwide, four of those five were in bear market territory, and only bonds had given a bullish signal.
Here we are only a month later, and all five assets classes have moved above their respective long-term trend lines into bullish territory. While even non-correlated assets can dance to the tune of the same drummer for a while, that condition will be limited.
Why? You cannot have a weak economic scenario with bonds rallying while at the same time commodities are on the rise. Sooner or later, a major trend will take over resulting in some asset classes to slip back into the bearish camp.
It’s important to realize how fast things can change, which makes it even more critical to not only have an exit strategy in place, but to actually execute it when changes in direction tell you to do so.