Bubble Trouble

There has been continued discussions about bubbles over the past 10 years -- tech, housing, oil, gold and others. While we've seen these bubbles blow up, the collateral damage has been fierce. But there is one bubble that is currently being popped that makes us all cringe -- the employment bubble. While it may not sound pretty, there is more pricking of the bubble on the way. You see, the employment bubble was created to support the other bubbles. There is always a lag effect. How much further to go on the layoffs? Quite a ways to go, I'm afraid. Until the excess capacity is reduced then layoffs will continue.

Market is Trapped in a Range

The range is wide, on the SPX it spans 800-920. Moves within the range can be sharp and meaningful, but also sold off quickly. Playing the range means being patient and waiting for the move to lower end (to buy) and the upper end (to sell). The reliability is there until the technicals say it's not. There is a tug-o-war with the markets and politicians currently, and who wins is anyone's guess.

S&P 500 Index Trading Range


Is There a Way Out of This Mess?

The more time passes, the closer we are to getting out of this mess. Certainly many solutions have been talked about and tried, most have been failures. The TARP plan was good in theory but has been applied poorly. The best solution to get growth going is to support small business, foster new ideas and embrace entrepreneurship. It is this support that will keep the cycle going.

The Question Is Not When But How

Market players are tired of this range, tired of no action, tired of waiting. They want to move forward, but without any solution that's just not possible. The annoyance of this bear market and the fleeing of capital certainly weighs on the confidence of market participants. Like every bear market, this too shall pass, albeit rather slowly. We must adapt our trading style to the environment and change the mindset for instance, buy and hold is really no longer the best practice in most cases it has turned into hope and pray. Understand the changes that are happening and make the adjustment, you'll be able to hold onto your capital longer.

Price Headley is the founder and chief analyst of BigTrends.com.