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OK…if it’s a bubble (I mean bullish analysis) for Stocks that you’d like, here it comes.

Just when you thought the major Indexes were getting ready for a correction, as many began to feel going into last week’s action, along came an impressive bull move across the major Indexes that set the Dow above 13,000, the NASDAQ above 3,000 and the S&P500 above 1440.  This sets the roughly three month gain for the tech heavy Nasdaq at about 20%.  So what’s driving this exuberant scenario?  Some argue significant job creation, some say the consumer is coming back as measure by Retail Sales, some say that all the stimulus is finally paying off.  The Doc says that’s all spin.

A major driver to this exuberant and bubblicous move in Stocks is a very nicely formed long term head and shoulders bull pattern in the NASDAQ Composite (also in the ETF QQQ) that points to an ultimate objective of around the 3,500 mark.  With this type of pattern in place, what you have is highly leveraged speculators that are playing the bull trade and pushing prices higher…solely because of a chart pattern. 

Will prices get that high?? If speculators have their way they will because bubbles (I mean bull patterns) are hard to break, especially when interest rates are negative.  However, there is a chance that if true, weak economic fundamental forces take precedence, they could somehow throw a monkey wrench into the scenario.  The Doc’s advice?  Don’t step in front of a fast moving freight train unless the signs are clearly evident that it is about to stop. 


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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