Thursday, August 11, 2011 5:02 PM – Nice Jump in Stocks, Gold Down, Market Bottom

After retesting the lows yesterday, the market was sharply higher today. Several times on the blog this week I have written about a bottom in the market decline and a retest of that level. The bottom, at least short-term was apparently Monday and successfully retested Wednesday.

Today the S&P 500 Index was up 4.63%, the Dow was up 3.95% and small stocks were up 5.4%. Europe was generally up 3%.

Gold was down $38 as the CME raised margin requirements, forcing some selling. Gold is very overbought right now and probably needs a pullback before putting new money there. In general, our allocation to gold is 12-13% but varies by client.

After dropping in price by 30% this month, the price of oil was up 4% today. Not many people are talking about the big drop in oil prices but that will be very helpful to both consumers and businesses.

Stocks are now priced at 10-11 times 2012 projected earnings and that is historically pretty low. It looks even better when you consider that interest rates are low, corporate profitability is very high and businesses have record amounts of cash to invest once they feel more confident. Spending by businesses has picked up lately though not many are reporting that yet. Our stock allocations are 0%-20% below normal, depending on the account. I plan to further increase exposure shortly.

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