How Stocks Bounced Back and Where They are Headed

A huge down month for stocks in January was followed by a big rebound in February, and now it’s March, and the first two trading days of the month were reminiscent of the first two months. Equities got slammed on Monday after tensions flared up in the Ukraine. Then on Tuesday, the market rebounded mightily as those tensions were dialed down several notches.

The result of the action in the markets on Tuesday brought stocks back up to new all-time highs, with the S&P 500 closing at a record high of 1,873.91. The index now is way back above its 50-day moving average, a mark it fell below in mid-January. The broad measure of the domestic equity market remains firmly ensconced above the 200-day moving average.

The action in the domestic markets is similar to what has taken place in Europe, as the chart below of the iShares Europe (IEV) looks almost like a carbon copy of the S&P 500, particularly over the past six months.

It is an entirely different story, however, in the emerging markets, where stocks in the iShares MSCI Emerging Markets (EEM) remain under pressure and below their 50- and 200-day moving averages.

The situation is similar for stocks in the bellwether Chinese market, as the chart below of the iShares FTSE China 25 Index (FXI) clearly reveals. The measure of the biggest stocks traded on the Shanghai Exchange also trade below their 50- and 200-day moving averages.

The big question occupying the minds of those of us who make investment calls for a living is what is going to happen from here?

Will this market remain volatile like it has been in the first two months of the year, or will things settle down and resume a more pronounced trend in either direction? Will the market calm and trade more in step with real fundamentals, or will the fast-money funds continue to dominate the trading landscape?

All of these are great questions, and there is no easy or obvious answer to any of them. And though we don’t know what’s next for the markets, we do know that if you are prepared to take advantage of the trends the market gives you, you will be in a great position to profit regardless of the circumstances.

Stones’ Cold Wisdom

I’ll fade away and not have to face the facts
It’s not easy facing up when your whole world is black

–The Rolling Stones, “Paint It Black”

One of history’s greatest rock and roll bands, the Rolling Stones, often had gems of wisdom laced throughout the group’s songs. In this line from the classic, “Paint It Black,” the Stones express how hard it is to live up to our mistakes. Yet if we are to get anywhere in life, we must step up and face the facts, because the facts, like the truth, will set us free.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about what last week’s calm means for the markets. I also invite you to comment in the space provided below.