Markets march higher

Happy New Year to all. Markets have continued to advance and that has implications for the rest of the economy. The stock market is a leading economic indicator. It will fall before the recession officially begins and job layoffs mount. It will rise before unemployment has peaked and for some time thereafter. When the recession is officially over the markets will have been rising for some time. And that is what we have seen. We are in a cyclical bull market in a secular bear market. Because it was the housing crisis that led to the current recession lets take a look at the Philadelphia Housing Index. To my way of counting it looks to be in a 4th Wave with an inverted head-and-shoulders formation which projects up to the 117 area or about the area of the previous high. Click on image to enlarge.

Because housing, the economy, and the financial sector all go together a look at the financial sector index XLF shows it too looks to be breaking out to the upside. A strong housing sector will help support a strong financial sector and visa versa. The chart below shows several months of support in the 14 to 15 range and I suspect it likely we will be testing the October highs soon. Click on image to enlarge.

Finally, I wanted to include a chart of Ford motor company. The state of the automobile industry also reflects the state of the economy and it is looking up for Ford. 2009 was a bad year for the car makers so the possibility of doing much better seems very likely. Click on chart to enlarge.