Jun 15, 2009 @ 07:25 pm
The divide between bull and bear camps is growing wider each day.
There isn't much middle ground. You're either in it, waiting for a pullback, or waiting for the collapse.
Despite the divide, the market shows considerable strength. And the big question remains, “Where are the markets headed from here?”
Frankly, there's still no easy answer. This is the stock market. It's nearly impossible to predict what is going to happen in the short-term. That doesn't mean it's impossible to tell. We just have to find the right sources of information. As usual, the mainstream press is little help.
The Wall Street Journal points out “stocks [are] in the black on gusher of cash.”
The latest Barron's warns the recent rally has gone “too far, too fast.”
Not much clarification there. But if you look beyond the headlines, you can get a good idea of what's likely to happen. And that's what's important. Figuring out what is likely to happen. Then get positioned.
The Bull Picks up Speed
The best catalyst for a market rise will come from improving investor confidence. All signs point to it continuing to rise.
Retail investors continue to get in on the action. Last week marked the 12 th week in a row investors put more money into mutual funds. The Investment Company Institute said another $13.6 billion was poured into mutual funds last week. The increase was broad too. It spread across equity, international, and bond funds.
Institutional investors are starting to get on board too. The last Investor's Intelligence survey puts bullish sentiment at 47.7%. It pegged bearish sentiment at 23.3%. That works out to two bulls for every bear.
It seems investors' willingness to dip their toes back in the market waters is growing consistently. But investors are fickle. Confidence can evaporate quickly. So despite the positive sentiment, we've reached a point where the economy needs to show some genuine signs of recovery before they plow a lot of money back into the markets.
The following three charts show there could be a recovery sooner rather than later. And they help show why I believe this rally has a lot more gas left in the tank than most people think.
Financial Services on the Mend
We've come a long way in the past few months. The financial services industry has been leading the way.
The sharp recovery of the Bloomberg Financial Services Index (Hat tip: Mark Perry at Carpe Diem blog) shows a recovery is just around the corner.
The Bloomberg Financial Services Index is “a useful gauge to assess banking and lending conditions and the availability of credit in the United States.” So when the index is up, access to credit is high. When the index is down, access to credit is low. As you can see in the chart below, the index access to credit has been recovering quickly.
![]("http://www.ibtimes.com/data/bigimages/7820.jpg")
The index has been slowly working its way back to normal. It's even getting close to late 2007 levels. That was a time when the market was getting its first whiff of the problems in the banking sector.
Credit flowing again is just part of the story here though. Another big benefit of the financial services industry getting moving again is a lot of people will get paid.
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