The Week ahead

Where the range is?

Last week was a watershed week for the markets. The Dow closed over 10,000. NASDAQ closed over 2,000. Investors realized that the market had come a very long way on not very much positive news. So Friday, stocks slowed down and pulled back a bit. This was to be expected.

The markets have yet to put in a top trading range, and are too close to these latest benchmarks to say a floor is in either. Unemployment figures hurt the markets on Friday, but that is deceiving. It has been said by economists that unemployment is a trailing indicator of the economy. This means that those figures will rise, and continue to rise even after the economy begins to grow again.

The market will depend heavily on the economic news in the week ahead. Signs that the economy is lifting out of recession will help. Evidence, even anecdotal that the holiday season is not going well will hurt, no doubt about it.

Since few important companies other than Oracle report earnings in the week ahead, it's the economic calendar silly. Watch it and you will see the bumps and potholes for the market.

It is safe to say that a dip below 2,000 on the NASDAQ is not important next week. The same goes for the Dow. As long term investors, we are more interested in long term trends. Three months from now, barring a major setback in the war on terror, we should be safely above those benchmarks.

WBBM Chicago Radio's business reporter Len Walter was quoted as predicting the markets would eventually put in a trading range, with the current levels as the bottom and maybe 10-15% above current levels as the top. Mr. Walter predicts a trading range could persist for years as the economy and market resists returning to the levels achieved in the Internet bubble.

I think the trading range is reasonable, but not the length of it. In the Internet economy conditions change too quickly for a stable market. Everyone in the market has instant access to information and some of them act on it.

Its hard to say how long any trading range will last, but we are in a new era. Volatility due to improved profits or events abroad is an animal we are simply going to have to get used to.

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Shmuel Protter
investmenttool.com