Posted on June 11, 2009 - by Jeflin

Limited Investing Opportunities In Range Bound Trading

Photo by circo de invierno

Time flies when we are having fun… we are now into the 13th week of a stock market rally that started in March. The embers of the stock market rally has not flickered out entirely but there are signs of investors taking some profits off the table.

In the short term, stocks may still rise. Blue chips have retreated slightly but are generally holding up while rotation plays have seen penny stocks enjoying a new lease of life. Some of the penny stocks have dubious fundamentals but this indicates investors’ appetite for quick gambles before getting up from their seats in the casino.

I have constantly stressed on a major stock market correction because I am not convinced that global economies will experience a V-shaped recovery. Yes, the worst may be behind us, as vouched by Paul Krugman.

He said: “I will not be surprised to see world trade stabilize, world industrial production stabilize and start to grow two months from now. I would not be surprised to see flat to positive GDP growth in the United States in the second half of the year.”

Before we get carried away, he tempered his optimism with another remark: “In some sense we may be past the worst but there is a big difference between stabilizing and actually making up the lost ground.” That implies we may not see full employment nor optimal production and consumption any time soon.

The harsh reality remains that employment, retail sales and auto sales are dismal. Non farm payrolls shows the smallest decline since October 2008 but the unemployment rate was worse than anticipated. Consumer spending, which powers two-thirds of the U.S. economy, dipped while consumer borrowing in April fell by twice as much as analysts had expected.

For the time being, bears have not asserted their full presence and range bound trading will be the order of the day. In the event of any drastic correction, the stock market has a tendency to fall slowly and then all at once. However, it is impossible to predict the timing of this reversal or what event will percipitate the downfall. Read more…

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