Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average gained 390.12 points or approximately 3.9%, to finish at 10,402.35. In the February 8th edition of the Sterling Weekly and in the January 25th edition of the Sterling Weekly I discussed my thoughts on the overall market pulling back. In both editions of the Sterling Weekly, I stated that I felt the market rally from the March 2009 had basically completed 3 upward legs, or movements, and was now poised for a pullback with the possibility of the market, as measured by the Dow Jones Industrial Average, testing 9,487 on a closing basis.
Well, the market has rallied quite nicely over the course of the last 2 weeks. Now the question is whether the pullback that extended from mid-January until early February was the start of a new downward trend or simply a hiccup in the market's further advancement upwards. L1st let's ask ourselves what the retracement numbers would be on the market pullback if it is a new downward trend. The Dow Jones Industrial Average closed at 10,725.43 on January 19th and reached a closing low of 10,012.23 on February 8th, for a decline of 713.20 points. Since a typical retracement of a previous move is between 1/3rd and 2/3rds; a 1/3rd retracement would rally the Dow upwards 237.73 points to 10,249.96. A 2/3rds retracement would rally the Dow upwards 475.46 points to 10,487.69. In looking at the recent rally of the market in terms of using retracement numbers for a confirmation of a pullback or an upwards movement we would need to either see the market turn lower before reaching 10,487.69 to confirm a longer term downward trend or close above that level to discredit that a new downward trend started in mid-January.
In looking at the Dow from the standpoint of upside resistance levels on the chart; I see upside resistance at 10,428.05 and 10,501.05. While a close above 10,428.05 doesn't confirm an upward movement, that level may be a point that the Dow fails at. A close above 10,501.05 would confirm the upward movement and the possibility of the Dow testing its old closing high of 10,725.43
Lately there has been a lot of talk about job creation and helping small businesses, which are the primary source of job creation. But when you ask someone what constitutes a small business almost everyone has a hard time explaining or defining what a small business is. I thought I would take a look at see what the various definition of a small business are, and if I could shed some light on the issue. The Wikipedia defines a small business in the United States as having less than 100 people. The SEC defines a small business as one having less than $25 million in annual sales. The Small Business Administration ("SBA") defines small businesses by a variety of criteria including industry, employees, and revenue. For manufacturing the SBA defines a small business as one with less than 500 employees, and for retail and services industries those with less than $7 million in sales. However proving that even the SBA struggles with the definition, the SBA's table defining small businesses is over 44 pages long.
If a small business is to be able to grow, it must be able to raise capital, hire new employees, become a medium sized business in the process. One of the problems with this is that access to capital is very difficult for small businesses. Banks by their very nature lend against assets and collateral. Small businesses are typically self financed with money coming from their owners, friends and family. When money does come from outside sources it typically comes from Angel Investors, and venture capital firms. To make things more difficult for small business owners, the various securities laws in this country generally restrict investing into small businesses to accredited investors only. To be considered an accredited investor an individual must have a net worth of at least one million dollars and have made at least $200,000 in each of the last 2 years, and have the expectation of making $200,000 this year as well.
So now we find ourselves in this strange situation of having politician who talk of helping small businesses grow and add employees, but at the same time talk of raising taxes on those who own or invest in small businesses. We all know that you can't have your cake and eat it too. Only one of those things will really happen. So the next time you hear a politician talking about helping small businesses and he later talks about raising taxes on the wealthy realize that he or she is only serious about making one of those things happen. By the way, if you are interested, the Club for Growth is an PAC that supports candidates who are serious about growing businesses and the economy.