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Can you learn long term lessons from watching short term market action?

I believe you can. Look at the last week or so:

  • an economic statistic shows the economy gaining strength. ISM services at 55.4 handily beat the market expectation of 54 and even Briefing.com's more generous 55. (source: etrade)
  • oops! More signs of strength: GDP grew at an annual rate of 2.8%, almost a full percentage rate faster than analysts chattered about for days in advance.
  • then another economic statistic shows incredible strength: 200 thousand jobs were added last month, more than twice most estimates.

What happened after all three events?

  • The market sells off as bears, who think it is the FEDs sole duty to come to their rescue with perpetual cheap money, fear the gravy train might screech to a halt.
  • The market strengthens after the initial selling bout, as smart money realizes economic growth is the only hope for sustained profits and higher stock prices.
  • Bond prices fall as long term rates (which the FED has no control over) rise with signs of economic resurgence.
  • Gold prices collapse as doom and gloom scenarios fade into the sunset.

Don't take my word for it. Look at the chart of the last week trading in the SPDR S&P500 Trust ETF (SPY):


(Click to enlarge)

Source: freestockcharts.com

Want further proof (for permabears, nothing is enough. But I want to make my case as strong as possible). Long term bonds initially opened weak, scared by growth. Did they recover like stocks did? To borrow a slogan from Fox News ... We report. You decide. What does iShares Long Term Bond Fund (TLT) say?


(Click to enlarge)

If bond traders were so convinced the economy really is stalling, bond prices would be rallying...not stocks.

And finally Gold, the ultimate fear asset, as shown by the SPDR Gold Trust ETF (GLD):


(Click to enlarge)

What can you learn from this chart and from many days like it over the past few months, as the market brushed off "bad news" (for QExxx fans) repeatedly? Funds in the stock market are migrating out of weak hands (traders who sell at the faintest whiff of tighter money) and into strong hands (investors positioning themselves for a strengthening economy).

It cannot be emphasized enough: by the time the media chatter finally realizes our economy is gaining strength, the train will have left the station. Don't be afraid of statistics showing the economy chugging along. Economic recovery, not FED games, is exactly what we need for this remarkably durable bull market to continue.

Source: Economic Strength, Not The FED, Is Pushing This Market Higher