Six months ago, I asked a question on this blog, “What does DOW 11,000 mean?” At the time I was a little bearish because of the quick move higher. The markets sold off shortly after crossing 11,000 six months ago and have been range bound ever since then. Now, as we cross through DOW 11,000 again, what are my thoughts?
Fundamentals
The DIA (SPDR Dow Jones Industrial Average ETF), which currently trades a 12 times earnings is historically low for the average. The weak dollar could push earnings higher as most of these companies are growing their international earnings faster than U.S. earnings. This could cause the earning to mislead investors into thinking that earnings are growing when in fact the dollar is just cheaper allowing international companies to boost profits without boosting sales.
Technicals
Looking at the chart above, you can see the current trend is almost identical to the trend that crossed 11,000 in April. The current trend has yet to pull back or have a correction and stochastics trading at 93, the market looks to be overbought. Be aware: stochastics can be oversold or overbought for long periods of time. If you believe the Dow is going higher watch around the 11,200 level. If you believe the Dow is going lower watch the 10,700 level.
Other Factors
Jobs, jobs, jobs! If the job recovery doesn’t pick up, the market will stall out. Main street is still hurting no matter what the market is doing. Retail investors don’t want to be in stocks but rather in bonds. The so called “Currency War” that some are referring could really come back to hurt Americans and the U.S. Dollar. The dropping U.S. Dollar will make import prices higher, along with higher gas prices. Remember when looking at stocks or ETFs to look at more than just stocks, take a look at what else that could affect the potential stock or ETF.
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