Bulls Under Pressure on Inflation Worry
The Dow closed down marginally by almost 30 points today as more investors rushed into bonds, depressing bond yields, on future inflation worry.
Fundamental Analysis
Yes, the Dow sold off near the close from the positive territory into the negative following the FOMC minutes (see Stock Market Calendar) which seems to suggest potential higher inflation going into the future than previously expected. Indeed, it would be counter-intuitive to expect a low or no inflation scenario after so much liquidity has been pumped into the financial system. The golden rule remains; More Currency, Less Value. Inflation is a worry during every economic expansion cycle and is a reality that needs to be accepted. Selling off stocks due to inflation fear only cause you to miss the growth created by economic expansion. Today's rush into bonds depressed bond yields across the board, bringing long term bond yields below the 4% mark. This is a point low enough to make equities look attractive once again as yields that low cannot be expected to beat inflation. Lets see if that spurs a return to equities for the rest of the week.
Technical Analysis
On the technical front, nothing really happened today. Like I always said, a few sideways days following every big up or down day is the norm. So a sideways day like today following yesterday's ditch is no surprise at all. The Dow continues to trade along its 30 days moving average with increasing short term bearish momentum. In fact, it is shaping up to look like an intermediate pullback like we saw back in Late June/ Early July. Yes, in a weak bull market such as this one, periodic significant pullbacks are to be expected, which is why I mentioned that investors should keep a mid to long term perspective on the market right now.
For now, the Dow remains in all out bull trend.
Fundamental Analysis
Yes, the Dow sold off near the close from the positive territory into the negative following the FOMC minutes (see Stock Market Calendar) which seems to suggest potential higher inflation going into the future than previously expected. Indeed, it would be counter-intuitive to expect a low or no inflation scenario after so much liquidity has been pumped into the financial system. The golden rule remains; More Currency, Less Value. Inflation is a worry during every economic expansion cycle and is a reality that needs to be accepted. Selling off stocks due to inflation fear only cause you to miss the growth created by economic expansion. Today's rush into bonds depressed bond yields across the board, bringing long term bond yields below the 4% mark. This is a point low enough to make equities look attractive once again as yields that low cannot be expected to beat inflation. Lets see if that spurs a return to equities for the rest of the week.
Technical Analysis
On the technical front, nothing really happened today. Like I always said, a few sideways days following every big up or down day is the norm. So a sideways day like today following yesterday's ditch is no surprise at all. The Dow continues to trade along its 30 days moving average with increasing short term bearish momentum. In fact, it is shaping up to look like an intermediate pullback like we saw back in Late June/ Early July. Yes, in a weak bull market such as this one, periodic significant pullbacks are to be expected, which is why I mentioned that investors should keep a mid to long term perspective on the market right now.
For now, the Dow remains in all out bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
posted by Jason Ng at 5:02 PM
0 Comments:
Post a Comment
<< Home