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.

As the stock market remains range-bound, looking into the mutual funds may tell you what the retail investors are buying. Although mutual fund inflows bounce up and down monthly, there has only been one month with a negative inflow this year. Taking a deeper look at the inflow of the type of fund may give retail investors an inside into where the market is heading.

Is Now The Time For Stocks

Stock Mutual fund inflows since May have been net negative, but could that be part of the “Sell in May, and go away” theory? The S&P that currently trades at 13X trailing twelve months (ttm) earnings might seem cheap to some, while others may say the earnings of the past twelve months are artificially inflated by government intervention. If you are in the bullish camp, look at individual stocks and make them give you a reason for buying them. The S&P 500 is still unable to stay above 1150 and until then the market looks range-bound.

Are You Afraid Of Stocks?

If you are afraid of stocks, the game is not over; you can still buy many different types of bonds. Although the returns are meager on bonds, they can and sometime will beat the overall stock market. Just remember as with stocks, the riskier the bond is, the more of a chance you have at losing money. Bonds are a great way to add income to your portfolio but some stocks and/or ETFs yield more than bonds.

Whichever way you decide to go whether long/short stocks or bonds, keep your portfolio diversified and have cash ready to make your next move.

Earnings season is right around the corner and stock are deeply oversold. So, is now the time to buy or should you wait until after earnings are reported? Is now the time to buy and wait for a quick pop from earnings or should you wait until earnings disappoint and buy the sell-off?

Many stocks are trading at single digit P/E ratios and valuations that make the market look cheap. Although I am not too much into fundamental investing, I have to consider fundamentals when trading. Value investors are working overtime right now trying to distinguish whether these valuations are of actual value or whether they are pointing to a weaker earnings outlook.

What Am I Doing?

Sitting it out for now. If I am not in the market, I can’t lose money. I see companies hoarding cash, retailers reporting mixed numbers, employment not improving, and terrible housing data. The technicals of the markets say there is more room to the downside but with any earnings season around the corner, volatility is the only certain thing in the markets. Some stocks will win and others will lose, I will sit on the sidelines and wait.

The Dow Jones Industrial Average finally crosses 11,000. What does it mean for the future of the markets and their direction? After finally reaching and closing above the much anticipated 11,000 mark, what’s the trade now? What does Dow 11,000 mean?

Fundamental Meaning

In a simple explanation, the market has just got more expensive. The Dow closing above 11,000 means nothing fundamentally. Don’t shy away the markets because they just got more expensive as the first company, Alcoa (AA), reported its quarterly earnings after the market close today. If earnings come in strong, then the market could be undervalued and send the market higher.

Technical Meaning

For technical traders, the Dow closing above 11,000 means almost nothing. So, what does it mean? Technical traders like round numbers. Other than that, the trend is still moving higher.

Psychological Meaning

This is probably the biggest meaning of the Dow crossing 11,000. It’s nothing more than a psychological number. With every movement higher, retail investors start feeling more and more confident about dipping into the market. Keep in mind: An inflow of retail investment usually indicates a top, whether long-term or short-term as retail investors are always the last into the market.

By no means am I calling a top in the market. Just remember that 10,000 was only about 8 weeks ago, which represents a 10% move in a short period.

The market seems to be ready for a big move but in which direction? Will the market continue to grind up slowly, consolidate before moving higher, or pull back giving investors a chance to jump in at a lower price?

The Technical Side

Looking at the chart below, you can see the trend is still intact but momentum seems to be running out. The trend is your friend and you should trade it as so. What do you do when the trend looks like it is about the break or reverse? Buy protection in the form of puts, shorting against long positions, or just go flat (no positions) until you have evidence the trend is still intact and continues to move higher or lower, whichever, the direction.

The 10 DMA on the SPX held today but looks like it might roll over. It looks like sellers want to short this market as the recent volume has been on down days.

Economic Data

Jobs, jobs, jobs. This week’s jobs number may be crucial to market direction. It will be interesting to see how traders will react to the reports. The Census jobs will skew the employment reports. If they come in worse than expected, even with the Census numbers, the market is likely to sell off. Jobs are a lagging indicator but with almost 10% of workers unemployed, it has the power to move markets. The ADP numbers that disappointed traders could give a sign as of what to expect from the payroll and unemployment numbers.

Now, might be a good time to take some profits off the table or to buy some protection.