A Market Technician Gives a Partly Sunny Forecast

Posted on December 1, 2010
Filed Under Mutual Funds, Personal Investing, The Economic Scene

Last week our Vice President here at Weber Asset Management attended a Financial Advisor Symposium in Orlando. The lead-off speaker was Ned Davis, whose institutional research firm Ned Davis Research has a long and respected record of sizing up stock market trends using objective data points.

As befits a market technician, his speech was illustrated with plenty of charts and graphs. For the purpose of this brief blog post, we’ll summarize his key points.

Most importantly, his stock market indicators put him in the “moderately bullish” camp for the near term, as long as the Fed maintains its policy of quantitative easing. “Clearly, we think the Fed is friendly,” he said, “and that is positive for the market.”

Davis is well known in the industry for his strong belief in the sayings, “don’t fight the Fed” and “don’t fight the tape.”  The tape refers to market direction, and right now the trend is mildly up.

Another bullish indicator is that consumer confidence remains extremely pessimistic. Davis pointed out that such pessimism historically coincides with market lows.

Despite rising commodity prices, Davis predicts that inflation will remain under control. As for housing, Davis’s indicators say housing prices may go a bit lower, but for the most part they have stabilized.

But Davis also didn’t back away from acknowledging the negatives.  For one example, cash holdings at mutual funds are near all-time lows, and that is a clear reason for concern. When mutual funds have little cash they cannot help push the market up by buying more stocks.

Overall, according to Ned Davis, the stock market positives slightly outweigh the negatives – a feeling which generally mirrors our own mind set.