Mother-of-all-V Recoveries Continues

The steady economic recovery is continuing according to the Conference Board economic indicators released on Monday.

The US has major long-term economic and social issues to manage. Still, there can be no denying that this Stock Market and Leading Economic Indicators (LEI) has been the greatest V shaped recovery of my lifetime.

The index of leading economic indicators beat even the most optimistic forecasts and rose 1.4% in March. Following upward revisions for Jan and Feb, the surprise surge in March now completes 12 consecutive gains for the index.

The coincident index, which measures the current economic conditions, also rose 0.1% in March. Of the four indicators in the coincident index, the largest positive contribution came from nonfarm payrolls. You'll recall that for March, the Labor Department reported that the U.S. economy netted 162,000 jobs -- the largest seasonally adjusted increase in three years.

Ataman Ozyildirim, an economist with The Conference Board, highlighted the positive jobs metric: "Payroll employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction."

Now 12 Months Strong of LEI Increases

While recovery skeptics remain, it will be difficult for the economic naysayers to find any negative news should the labor market continue its positive momentum toward significant net new jobs in 2010.

The index LEI has shot above the levels it saw during the 2007 USA stock market run up to DJIA 14,400 levels. But note how the coincident index indicators look like they've barely begun to rise. I've never seen this great of a divergence, has anyone else? Is this a good or bad sign? Does this foretell a reversion to the mean?

Buy Doom Sell Boom

Now that the DJIA just hit 10,000 (again) I thought it would be interesting to listen to what the wanabe market gurus and high paid experts were saying in the first half of this year. Here are just two examples of the many classic doom perdictions.

I'll be the first to admit the most advance I was looking for was DJIA 9,500. But it has become clear to me I need to be looking to buy stocks on break-outs and pull-backs. And one can always find lower risk stock laggers to hold into year-end (as discussed in prior articles). Each day as I scan the market details I continue to find strenght in many stocks. Many stocks are above their 2007 levels. A few with excellent earnings outlooks like Apple and IBM are near their 2008 all-time highs!

But even in July, I was reading non-stop articles on SeekingAlpha.com from their mega posters preaching how, at DJIA 8,200, the market was due for a correction back to 6,500. When it didn't happen they wrote articles telling you why the market was wrong and they were right. The real problem was just to many kids with great educations but like knowledge of market history.

The lesson to learn? One must establish a long-term savings and investment plan. And one must understand that the market is a leading economic indicator not a lagging indicator. If you wait to invest only when the economy is ideal...you are too late! If you only invest when the economy is horrible and the market has declined by 40% you certainly stand a better chance at higher long-run returns.

What now? You, need to understand this market momentum can continue to push the market up, back to last summer's pre-Lehman Brothers collapse levels ( around DJIA 10,500 or S&P 1200 ), by year's end. Yes, at this point forget thinking you will see a 10% correction, about the most we'll get is 5% because traders and investors see benefits in buying the dips again. Now this momentum can turn negative in 2010 just as it did in 2002. But as professional traders say, "You need to trade the market you see not the one you think it should be" and "The trend is your friend" the two best money making ideas they never taught me in BBA or MBA investment classes.



The young man above was just one example of how individuals will extrapolate out the current trend (when making market predictions). Listen to one of the many high paid experts who was perdicting the DJIA would fall to 5,500 and the S&P 500 would fall to 400! Folks the S&P 500 is now at 1,100 ---- 275% above this guys perdiction.

In September I gave readers just one more example of how Blogger Youthful Investment inexperience (in understanding stock markets and the data behind charts) cost his followers thousands
Eleven Reasons These Charts Are Worthless