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Amateur Investors Weekend Market Analysis (12/12/09)

http://www.amateur-investor.net/Weekend_Market_Analysis_Dec_12_09.htm

As I mentioned a few weeks ago the Dow has never had "3" consecutive years in a row in which the month of December has finished with a negative return. Thus I don't see any reason that this going to change so look for the Institutional Money to keep the market propped up through the end of the month.



However that doesn't mean the market has to rally strongly either as it could just chop around through the rest of the year as we have already seen the past 4 weeks.



Meanwhile the chart below shows the % of Household Assets Invested in the Market (Mutual Funds and Stocks) using a 6 Quarter Moving Average (red line) as tracked by the Federal Reserve on a Quarterly basis versus the Inflation Adjusted Chart of the Dow. Since the early 1950's when the % of Household Assets Invested in the Market has risen into the lower 30's the Dow has peaked shortly thereafter such as in the mid 1960's and late 1990's. In fact in 2000 the 6 Quarter Average rose above 35% (point A) which was the highest reading since the Federal Reserve began tracking this data back in the early 1950's. Meanwhile also notice from the late 1960's through the mid 1980's investors lost interest in the market as the % of Household Assets Invested in the Market dropped from around 34% in the late 1960's to below 15% by the late 1970's and early 1980's (points B to C). Furthermore notice the % of Household Assets Invested in the Market reached its lowest level in 1982 (point C) just as the Secular Bear Market bottom occurred. Thus most investors were extremely pessimistic about the outlook for the market prior to the big run that occurred from 1983 through 1999. However as you can see by the early to mid 1990's investor interest gradually increased as the market continued to move higher.



Next if we take a look at the past few years the % of Household Assets Invested in the Market was just below 30% in 2007 and has only dropped to around 23% (points D to E) near the recent bottom so overall there hasn't been an extreme amount of pessimism among Households so far. This is somewhat surprising considering the big drop in the Dow from late 2007 through early 2009. However the recent rally from the March lows has probably had some positive affect over the past 6 months. Meanwhile the bigger question is will the % of Household Assets Invested in the Market have to drop back to around 15% before enough pessimism occurs to allow for the next Secular Bull Market to begin?



Finally for those watching Gold it got hit pretty hard this week. However when you look at an Inflation Adjusted Chart of Gold you can see it has encountered some resistance near the 1987 levels. Also you can see it has formed the right side of a potential longer term Cup as well. It's possible Gold will now go through a longer term consolidation period in which it begins to develop a Handle over the next several months.



Meanwhile if we look at some longer term Retracement levels calculated from the 2001 low to the recent high the 23.6% Retrace is at 1014 while the 38.2% Retrace is at 883. Thus I would expect Gold to find support at one of these levels if it does begin to consolidate over the next several months.



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