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Possibilities and Probabilities

June 25, 2012 – 6:14 pm

With meetings in Europe this week and the imminent Supreme Court Health Care decision the stock market may be waiting for some kind of spark to push it higher or the lack thereof to test the early month low. Traditionally, we are entering a time called the Summer doldrums and usually it marks a pullback with a rally. Last summer there was a strong correction in August after a small one in June, but the low did not come until the very end of September. The pattern will likely repeat, but it won’t be the same. For one thing it may happen earlier this year. It may well be shallower as last year it was a fall of 19% from the high. It could also be deeper and be the start of a new bear market. These are all possibilities but what are the probabilities? Last year economies around the world were raising interest rates trying to fight inflation and this year they are lowering them fearing an economic slowdown. Last year the Japanese earthquake disrupted the worldwide supply chain and this year there is no such event.

One thing that has remained constant is the European problem which is still a concern as the worry spreads to Spain. New this year is the U.S. election and the fiscal cliff bearing down on us late in the year.

Does it not seem that there is always something to worry about? It seems that way because there always is. When you are managing money, whether it be your own or someone else’s, it is your job to separate the possibilities from the probabilities. With every economy in the world pushing for expansion with easy money policies, economies are going to grow. It also appears that the market is trading on the fear of the possibilities and not reacting to the probabilities. From that opportunity will come to those who are patient.

Good Trading
Steve Peasley

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