Markets Confirm Further Upside

Last week I wrote twice that the markets were going to go up further despite weaker than expected economic numbers and worries about high unemployment. I reasoned that earnings were just too good so far, with the majority of companies beating expectations and most expected to beat for the rest of earnings season. This set the stage for the uptrend from July 1st lows to continue. I wrote that the Dow needed to break 11600 with confidence and today it opened above that resistance level setting the stage for a continued rally to resistance of 11,900 and then a heavy bit at the 11,200 level.

It should be a good month for stocks as the global economy is still alive and well and until China and India both show signs of significantly slowing to paces under 6% growth the money will follow the earnings. Most of the companies that are beating are beating on strong international sales so with the global nature of our companies today you need to have an international outlook as opposed to just looking at fundamentals on just home soil.

What looks more certain to me than deflation, is poor to flat economic growth in the face of rising prices, which is what will ultimately happen if the developed world economies don't resume a reasonable pace of growth again soon.

One problem the US has is that it needs to encourage spending on home soil as well get credit moving through the system again. The system was designed to run a certain way and now that they are changing it all of a sudden to run a different way the the economy can't take it. It needs the spending to run, it needs it until it can encourage its industry to expand. It needs that spending to bridge the gap until industry can come and reinvest in the US economy.

I think you can have poor economic conditions and positive earnings in this day in age. Its very easy to see how. A lot of people are talking that the markets have to follow US economic conditions, I don't think so and for the first time in history you will see a disconnect between the US economy and the US stock markets because of the international nature of most major companies.

I think the markets push to at least 11,200 but in all probability may go as high as 11,500 - 12,000 where possibly in the fall a further slow down in China as well as further negative revisions of economic data could combine to take us lower.

Happy Trading :)