Before I discuss my positive topic today, I want to take just a moment to reflect on the unbelievable disaster in Japan …
After more than few decades on this planet, I have “seen” more than a few natural disasters. This year alone, though, we have seen massive floods in Australia and huge earthquakes in both Japan and New Zealand. I cannot recall such natural devastation in such a short time, and it is not over yet, as huge Tsunamis are spreading out through the Pacific Basin. It may yet turn out that these “tidal” waves do little more damage, but what they have wrought so far is quite disheartening. Once again, “Nature” has reminded us humans that no matter our technological prowess, we can do little to impede the forces of nature when they are disturbed. I wish the best for the folks in Japan, as well as all the other folks this disaster is affecting.
As traders and investors, we look to many indicators to divine future market direction. One maxim that rises to the surface in this endeavor is “follow the money.” Specifically, this notion references the big trading firms and institutions. Generally, in the last decade or so, it has come to include the money flowing from individual investors into mutual funds
Investors continued to warm up to the market in February, putting more money into stock mutual funds than they withdrew for the second consecutive month. Investors deposited a net $14.8 billion to U.S. stock mutual funds last month … The total was down from $21 billion in January, the biggest monthly surge into stock funds in seven years. Year-to-date, stock fund flows are off to their best start since 2007. Stock prices reached their historic peak in the fall of that year, before tanking in 2008, and beginning their long climb back in early 2009.
I titled a recent column, “The Retail Investor Is Back and This is Really Good News.” Now that the February numbers are in, I reiterate, this is good news. If we can get past the recent spate of bad oil news, and the recent drop in consumer confidence (think gas prices jumping up suddenly), it might just turn out that this trend in the money flow continues, and if it does, we can expect a market trend along the lines of what we saw in 2006 and 2007.
Interestingly, the market climb in those two years happened despite powerful political polarization, a lack of job growth, a recession forming, and warnings from many about the impending financial collapse. Compare that environment to what we have today. Even though we have major headwinds blowing at us, one major difference exists between then and today – the economy is headed in the right direction. Back then, the major flow of events pointed to collapse. Clearly, the context is dramatically different today.
The point here is, as I have been saying, prepare for a major move upward in the market in the next 1-3 years, assuming, of course, we get over the hurdles looming directly in front of us. If we do surmount the hurdles, 15,000 on the DIJA in the nearer term (two years) is not out of the question.
Trade in the day – Invest in your life
