This past weekend was an interesting one as it marked the five year anniversary of the bull trend for the stock market here in the US. Looking back on March 9, 2009, we've come a long way on the upside. According to the popular ETF SPY (PACF:SPY), we are up over 181% from the bear market low.
Over in China this weekend, their stock market collapsed to a five year low because of poor demand for their exports. So, on one side of the ledger you have the US market making new highs and in China we are witnessing their market make five year lows.
Can we see these two trends continue? Can the US continue going higher after five years? Is the economy so bad in China that it means that their exports will drop off even more than the recent decline of 18%? Being their number one trading partner, we put ourselves in a bind. If we can't sell the imported goods, then it would appear our economy really isn't that great either.
Seldom do you see such dichotomies in economic trends between two powerhouse economies. Something has to give.
Last week I talked about the US market reaching a tipping point, you can read that post here. What I did not mention is that margin debt, or the money investors borrow from their brokers for stock trading, has reached a new all-time high. This normally indicates that an excessive amount of speculation is going into stocks, especially low-priced stocks. Could this be a warning sign of what's ahead?
I believe that this week and next week could be enormously important for US stocks and I will be paying close attention to the Trade Triangles for signs of a potential downside reversal.
REALITY CHECK: I am not trying to pick a top in a 5 year old bull market, but rather sound a cautionary note that tight stops and other money management principles should be in place at this time. It is far better to be prepared mentally than have an event appear out of the blue that pushes this market into a tailspin.
Every success with MarketClub,