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Don't Worry About a Sideways Market
02/13/2013 6:00 am EST
As many of the major averages are at or near all-time highs, the S&P 500 is in a trading range and MoneyShow's Jim Jubak explains why this is a positive development.
For the week ahead, count on drift. This is not a bad thing...even though we’ve gotten a little spoiled because we’ve had such an incredible run up from December and into January.
We’re at five-year or all-time highs, and right now as we bounce around between 1,510 and 1,495 on the S&P most days, it can feel like "oh my God, oh my God, we’re not moving up." Well, this is what’s supposed to happen.
When you get a rally that’s this big this fast, and then it hits psychological levels or all-time high levels, it takes a while of backing and filling for people to get used to the market at the new levels...to decide these levels are OK. "I can buy in; it’s not going to crash. I’m not going to be the stupid fool who buys at the top."
So we get all that kind of garbage emotion right now, and it means that the market really doesn’t go anywhere. The market has to not go anywhere for a while if we want this rally to go up any further. Basically, what you’re doing right here is you’re setting a new base. It has to take more than just a day or two. You have to go through 1,500 and then back, and then through 1,500 again.
You’re just sort of setting that level, so while it may feel like this means the market has stalled and the rally’s over, it doesn’t mean any such thing. In conventional terms, it’s taking a breather. We’re getting a little pullback. We’re base-building. We’re consolidating. All those things are true. It’s what happening right now.
Does it mean the market has to go higher? No. Going higher will depend on some good news somewhere, some cash flows.
Remember that at the beginning of the year, frequently stocks go up because money comes into the market at the beginning of the year. It happens because that’s just the way cash works. People do put end of the year deposits into accounts. You’ve got people trying to beat the end of the year to get money into retirement accounts.
All those things mean that there’s a good cash flow in January. Really, that propelled the market up in January, and then we went up on hope and expectations for a decent earning season. All that stuff has kind of stopped, and so have we right here.
The fact that the market hasn’t gone down is actually the best sign of all—if we just get this kind of drift for a while, and the market doesn’t go down, it means that this market may not be at a top, and we may be looking at something further. The drift itself is a healthy thing, as long as we don’t drop back below levels of support.
This is a good time to be going nowhere, and that’s what we ought to be hoping for.