Lately, I've taken to pointing out various points to consider in examining the economy and the reflective markets. So here's another subplot to watch and consider as this great economic drama of 2009 plays out over the next month's worth of economic reports and earnings season.
"Loading the Boat" refers to investing more money into the market after it has seen a rather standard 3-5% "correction" or "pullback". Essentially, pullbacks of this type don't indicate interruption in the general upward trend of a market and allow investors to invest (i.e. reloading the money boat) at lower levels despite the fact that the market is not fundamentally worse off. An example of this can be seen in today's action. Sure, the service sector economic report came out at 10am with a reading of 50.9 (anything above 50 is expansionary and this confirmed the theme of the currenct economic recovery). But the reading was barely above 50 and was expected to come in above 50. So in addition to some technical lows that the market failed to break through last Friday (meaning they bounce off those lows today), you're also seeing investors 'reload the boat' in what they see as a market that is continuing to trend higher (general estimates maintain expectations of 1150-1250 by the end of 2010). Also keep in mind that mutual funds and other market funds have triggered, automatic purchases setup on Monday and at the beginning of new months - if they believe the market is going higher (this is because they've received new investments and have to do something with the money, whether in bonds or equities). Such an inflow of liquidity must go somewhere and that means something is going up in value.
The subplot here is with the approaching earnings season as we wait and see whether companies actually GREW revenue from the prior quarter, if investors are increasing spending at all, and as other economic subplots play out (i.e. housing without a first-time home buyer tax credit and whether the September monthly unemployment report was a blip or a sign of a still seriously deteriorating employment market).
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