The Way I See It (A Look at the Big Picture)

To be sure, concerns remain (and appear to be building again) regarding the Euro-zone economies in the face of the ongoing Sovereign Debt Crisis. With each passing week it seems there are increased worries being voiced about the impact of austerity measures on the potential economic growth rate of the Euro-zone in general. And, of course, concerns regarding growth rates and G.D.P. expansion are especially elevated for the economies of countries adopting strong austerity programs such as Italy, Greece, Ireland, Britain, Portugal, and Spain.

Another area proving to be a drag on sentiment regarding the markets is the continued unrest in Egypt, Libya, Syria, Yemen, etc.

It is clear the markets a facing numerous headwinds at this time. The question would seem to be where the market players focus. Do they react to the current difficulties and drive the markets lower? Or do they instead react to potential solutions to those problems and bid up market indices?

For now, I am leaning toward the former. Numerous market metrics tell us that the major uptrend for the U.S. stock market is still intact. However, it is now in its 3rd year and we must admit that it seems to be getting a bit frayed around the edges. More than one of my research sources has pointed out that:

  • Bull markets gradually roll over.
  • Major tops take time to develop.
  • Few, if any, technical indications of a change to the major trend are yet to be seen.

Even so, I must admit that I am uncomfortable with the market right now. I cannot help but recall just how quickly things unraveled in 2008. I know that problems were building for 12 to 18 months (or more) before the October 2007 start of the last bear market. But as the saying goes: history doesn’t repeat; but it often it rhymes.

With that in mind I cannot help but note:

  • The Sovereign Debt Crisis first began to surface about 2 years ago.
  • The first bailout, “Greece 1” was engineered about 1 year ago.
  • The bailouts seem to be coming more rapidly now as the pace of events accelerates. (reminiscent of 2008)
  • There seems to be a more desperate tone to the entire affair with “denials” becoming more shrill and less believable.

To sum up – My intuitive sense is uncomfortable but I also recognize that there is not yet objective market based evidence indicating that the bull market cannot continue.

So I circle back to what I have stated before. I will keep positions small, attempt to quickly cut losses, look to take profits without quickly (and avoid getting greedy), and stay flexible.