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December 1996
Everyone's heard it before: The aging baby boomers are continuing to invest in the stock market, and so the long-term trend of the stock market is up. We'd heard this before, but I had never seen it presented so persuasively as in the chart shown here, from "How technology transforms every company" in Envisioning the Future With Computer Telephony by Harry S. Dent Jr., author of The Great Jobs Ahead and the Great Boom Ahead. The chart compares US birth rates lagged by 44-46 years overlaid on the inflation-adjusted Standard & Poor's 500. You can see the relationship between the number of aging individuals and the trend of the S&P 500. The message here is two-pronged: baby boomers will continue to spend, powering the economy and the fortunes of companies, while at the same time continuing to invest in the stock market, using 401k plans as well as others. The long-term trend of the stock market appears to have a very strong underlying demand component.Of course, there will be problems for the market along the way. There always is. History shows that any time interest rates start rising, the stock market begins to struggle. During February 1996, US Treasury bond yields started rising at the same time that the stock market began to move sideways. Then the upward trend of stocks took off again after the bond market indicated that rates had peaked for now at the 7.25% yield.
These intermarket relationships have been covered in many STOCKS & COMMODITIES articles. But it never hurts to review important topics, and that brings me to this month's interview with author and CNBC market analyst John Murphy. Murphy, whose writings in the field of technical analysis and especially intermarket analysis are must-reads, talks about some of his methods for spotting emerging trends, intermarket analysis and his favorite indicators. One of the more interesting aspects of Murphy's work is that he believes in using techniques that are insightful and yet simple. Keeping it simple is probably the best advice any new technician can heed.
This issue marks the end of another year for STOCKS & COMMODITIES. Throughout the past year, we hope we've provided you with an abundance of ideas and tools for trading, and next year we'll bring you even more. For now, we wish you and your family a safe and enjoyable holiday.
