The Stock Market Rally that never ends?

As “Buy the Dip” regardless of the news is still occurring and we saw the market end last week on fresh YTD highs it seems nothing can stop this rally. There have been some major volatility swings as evidenced by the SPX bouncing off of 1194 to end at 1217 and the VIX is signaling a contrarian top. The best plays the last several weeks have been to either buy the dips each day or short the highs and sell immediately at the next days lows.

AAPL has been on an absolute rampage rally on the heels of earnings and future growth prospects. US Steel (X) seems to be basing out for a move up but could also dip toward 50 and long term this is one of my favorite stocks. I strongly recommend buying X on any major pullbacks. GS also appears to be consolidating after the fear based pullback, it may go lower but long term Financials are probably my favorite sector.

When these 3 Best of Breed stocks fail to hold support and the Financial sector falters there will be a pullback. The severity will be limited UNLESS geo-political events escalate on any number of fronts. EU credit concerns, China real estate bubbles, Middle East tensions, and the even more unpredictable volcanoes and earthquakes are all potential catalysts.

If you look at my previous blog you’ll see the SPX and DOW charts and notice how both bounced up almost exactly above the previous lows (column of 0’s on PnF charts). 

The DOW broke above 11.2K and the SPX seems on track to test SPX 1230 or higher, probably this week. My call for the rally to end at 11K was wrong and though all technical indicators are showing overbought conditions, the rally still persists.

How am I preparing for what has to be a top very soon as the SPX approaches the 67% Fibonacci retracement levels from the March 2009 lows (which is SPX 1230)? Join our FREE discussion board and share or learn with a group of great experienced investors.

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The biggest rally in History, what next?

We’ve now seen SPX 1180 twice recently and it’s currently upper resistance with many pro’s predicting we’ll see SPX 1200-1250 sooner rather than later. The market continues to look extremely overbought but SPX 1165-1170 has held support on every dip in the action lately. Reviewed all charts for the DOW, SPX, BDI, US dollar, etc… and it’s interesting to note the 50 and 150 DMA’s have held support during the lows over 1 year. Specifically in February both the DOW and SPX bounced up almost exactly off the 150 DMA. The RSI and MACD signals continue to tread in severe overbought territory. The US dollar has turned down a tad but could easily bounce up off the 50 DMA and signal another downside reversal in Gold and Commodities. I view the major Indexes 50 DMA as support on a pullback and the 150 DMA as major support for a correction (like Feb!).

DOW 10,800 is now lower support with DOW 11K very close and a probable target on the next rally leg. The 150 DMA is down around 10.2K with the 50 DMA at 10.4K.

Futures markets moved up slightly on Friday’s Employment report but the numbers were less than consensus estimates though showing a steady improvement. The big question tomorrow morning will be whether this causes a Sell the News Event? Earnings season kicks off on April 12th and experts seem to be in consensus that SPX 1150 is major support on any small pullback near term. A break below that level could bring on major selling and a probable move down to the 50 DMA! I’m concerned that a slew of better than expected earnings reports could ignite another pullback like last January. Best to stay nimble as contrarian moves and/or hedging your portfolio may be the best strategy.

Emerging markets had extreme buying volume last week and are now showing technical oversold conditions as well. This sector had been lagging the US markets and I believe the theory espoused by pro’s that EM will be a safe sector when the US markets pullback or correct is a BUNCH OF HOGWASH. World markets will follow the US down on any correction and if the Dollar keeps rallying Gold won’t be a safe haven either.

Now that we’re at YTD highs again let’s look at what worked going up and what will probably rally on a correction. Simply click on the- 1 wk, 4 wk, 13 wk, 1 yr symbols and then click again to look at the top to bottom performers or vice versa for each column. http://moneycentral.msn.com/investor/partsub/funds/etfperformancetracker.aspx?s=52w

If you look at the percent gains you will see that 2X and 3X ETF’s far outperformed most stocks over the last year. There are however many Best of Breed stocks that did beat leveraged ETF’s, ISRG, BIDU, AAPL, US Steel, GS, etc.. Considering the volatility of individual stocks the sector leveraged ETF’s are a good way to diversify and are a better long term investment vehicle than most think. You just have to be able to ride out volatility and hopefully add on the lows, typically 50 and 150 DMA’s.

As employment continues to improve the specter of higher interest rates down the road is hanging over the market and any changes are bound to cause short term dips until the market digests the news (which always happens eventually).

Pro’s are saying April is the highest inflow month for mutual funds which should continue to see increases as we approach April 15th. This could lift all boats so to speak but extreme caution is warranted going into the May/June timeframe.

After such a historic rally I’m really concerned the market is setting up for a major correction. A 10-20% correction would actually be a good thing as long as support holds at critical levels and I’ll be hedging my portfolio to preclude major losses and possibly even achieve some gains shorting certain sectors. Join our Free Discussion Forum to get insights from myself and many very experienced investors. Here’s my near term plan-

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Fear and Loathing on Capital Hill or How I learned to love stock market volatility!

Last week was of course historic with the passage of the new Healthcare Reform Act which contrary to many experts did not cause a stock market correction (excluding a 100 pt drop for about 2 minutes early last Monday). If fact the stock markets rallied all the way to DOW 10,980 as an intraday high and the SPX briefly touched 1180 before pulling back.

On Thursday the markets were rocked up and down 100 pts on news the Greece bailout wasn’t appetizing to the EU financial guru Pichet who later that same night decided he liked the plan. 

The US Dollar index peaked close to 83 before pulling back slightly and it’s up/down movement (primarily influenced by worries in Europe) had a great deal of effect on Gold, Commodities, and stocks in general. Interestingly enough the US stock markets are occasionally starting to rally slightly when the dollar goes up and could disconnect from the Dollar Effect if US growth continues to be evident.

Friday the markets rallied up on news of a Greek bailout only to falter again on worries over a S.Korean military ship sinking with loss of life. By the close on Friday the Korean situation was announced to be a probable accident and the DOW recovered 1/2 the daily losses to close the week at 10,850 with the SPX holding support at 1166.

I use Financials and a handful of Best of Breed stocks as my main indicators along with RSI, MACD, Volume, Breadth, and Bull to Bear sentiment. What are these indicators showing for the immediate future?

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Ringing the Bell, when to take Profits!

Most of us have wondered when will this historic rally be over and when should we Ring the Bell and take serious profit or head completely to the sidelines. The old adage of Sell in May and go away works over long periods of time but hasn’t worked too well the last couple of years.

Some folks I highly respect make it a point to follow the 30:30 rule regarding when to take profits out of the stock market. When an equity position is up 30%, take 30% off the shares off the table. Last year I bought leveraged ETF’s and Best of Breed Stocks that gained 100-400% during this historic rally and I took a great deal of profit along the way. Now I’m down to 7 bull positions and ready to trim them further on a minutes notice but I still have a small handful of BoB stocks that are up well over 100%. My short hedge is now set up and ready to be increased when this market does roll over and finally give us a 10-20% or greater correction.

We’re seeing historic volatility and stock market rallies, historic changes in our Government, and a lot of general confusion as to the direction and what is best for our country now. The Vote today on Healthcare Reform could cause a massive stock market correction or just a little 2-5% pullback. No one knows what will happen but with the RSI signals at peak levels along with bullish to bearish sentiment and 90% of the SPX over the 50 day moving average IN MY OPINION the stock market is begging for a average to above average correction downwards.

Until we see some high volume selling across every sector of the stock market this rally could continue but I highly suspect last Friday was a great time to start going short and take some profits off the table.

Personally I watch the Financial sector the closest and it started rolling over last Thursday with almost every Best of Breed stock and bullish ETF down even when the DOW peaked above 10,800 early Friday morning. The SPX came close to 1170 before pulling back slightly as well.

Members of Best of Breed Investing have access to my latest Trading Plan with a early morning update tomorrow. We also share trading info in real time via MSN Live and I send email updates during the trading day as well. The BOBI discussion board has a general FREE area where general outlooks are shared and a Members Only area where I post daily results, trading plans, future outlooks. To access any of the Members Only info join Best of Breed Investing today, the first month is FREE.

Be careful with your investments, the market is fast approaching an inflection point with probable relief rallies along the way. The key is to watch for a formation of LOWER highs which is confirmation of a trend change.

Blessings to all!

DOW 10.7K, new 18 month highs!

Very pleased to see the market continue to melt up after I changed my bias a bit to the bullish side last week. When I saw the SPX clearly hold a higher high on the short term PnF charts I was very positive we’d see DOW 10.7K and quite surprised to see it push to a new 18 month high today. The following are excerpts from the Best of Breed Investing Discussion forum FREE area so those new can get a glimpse of what I write daily. The actual trades are shared in the members only area, via MSN Live, and by email.

Keep in mind RSI signals are showing extreme overbought conditions right now, caution is warranted for bulls, patience is needed for bears.

Looking like more upside is probable in the next 48 hrs unless Financials roll over. Apparently this sector was downgraded today and barely burped. Watch Financials and Real Estate. The VIX (volatility index) went below 17 for the first time in quite awhile.

There is also a lot of buzz about Fund Managers chasing the trend which will cause a continued melt-up going into the employment report early April. This report is supposed to be much BTE but I wouldn’t be surprised to see it cause a SELL the NEWS event if we continue rallying till then.

If Congress approves the healthcare bill over the weekend (as news is now rumoring) then all bets are off. The market might shake it off and keep rallying for awhile but this isn’t the time to dive into this bull market IMHO.

Ready to shift gears on a moment’s notice either way now. The Member’s area has my specific trades and positioning.

10,767 was the intraday (new 18 month) high, very close to my call of 10.8K back in January.

How am I trading this and positioning for the next days and weeks?

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When will Fear overcome Greed again?

Last week was pretty impressive considering overall low volume on the stock market and the daily gains/losses were more in line with historical averages than the gigantic rollercoaster moves we’ve seen so far this year. With the SPX now sitting right on a double top at 1150 the next question is will the DOW re-test the 10,720 level?

Here’s a nice PnF chart of the SPX showing the entire rally from last year!

Here’s the DOW rapidly approaching a double top formation.

Looking at the charts of various Best of Breed stocks, Ultra bull and bear ETF’s, and various other equities would lead one to believe a 10% or greater correction is forthcoming. Experts are extremely confused at this point as to whether the low volume buying and selling was due to overbought conditions or the market is taking a breather to move higher. The Volatility Index is approaching historical lows again meaning less fear is present in the options markets.

Next week will be critical on many levels starting with Monday when we’ll see if mutual fund managers hit the bait or run for the hills. Tuesday’s Fed meeting minutes release will also be very critical and rumor is the employment report due the 1st week of April could be much better than expected.

CNBC had a report that Best of Breed stocks were not being bought last week and the rally was driven by less quality equities like AIG, C, etc….  Not sure how they came to this conclusion as I track about 20 BoB stocks like AAPL, GS, GOOG, BIDU, ISRG, V, RIMM, RIG, POT, MON, MOS, X, etc.. and most were positive on the upswings last week, not just the low quality names. What’s a trader or long term investor supposed to do when the experts are confused?

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When will the Stock Market Rally really end?

We’re all wondering about this and waiting for the “Bell to ring”. It’s too bad it’s not that simple and without a Black Swan Event catalyst we could drift sideways or rally slowly for quite awhile.

The SPX has a lot of support now and 1140/1130 are the 1st two levels of support on any little pullbacks. The DOW has a support at 10.5K followed by 10.4K. Watch these levels closely as buyers may come in turning any bear move into a head fake.

Many pro’s like Cramer and others are turning very bullish on Banking/Financials again which amazes me as FAZ is the most oversold ETF in the world now.

Watch XLF, it’s a 1:1 ETF so the daily moves are more in line with reality than UYG or FAS. If it breaks above 16 you’ll probably see large moves in UYG, FAS, GS, BAC, JPM, C, MS, and regional banking. The same goes if UYG prints $7 share.

http://stockcharts.com/def/servlet/SC.pnf?chart=XLF,PLTADANRBO

Also watch GS very closely as that will probably be the first indicator of a reversal in the current bullish banking sentiment. It’s supremely obvious that Financials, Best of Breed Stocks, and Bull ETF’s are way oversold and due for a pullback. The question is whether it will be a small one to the support levels I mentioned followed by new highs or a real full-blown correction.

I looked at a long term chart of the VIX and 12 is about as low as it’s ever been since 2003. The RSI signals for the DOW and SPX are at typical turn point highs and I believe the only thing holding up the market is Financials and less “stirring of the pot” from Capital Hill. If the employment report is good tomorrow we might see more upside or vice versa.

It still wouldn’t take much to crash this party but I’m not going to fight the tape. Now 25% bearish, 75% bullish, 24% cash till I see some reason to change (which would be the Financial sector breaking down).

Looking forward a couple of months we might see a Sell in May and go away event or this market might just rally all the way till August in fits and spurts barring any geo-political Black Swan events.

ONE news story could end this or at least cause a big pullback which is why I like having at least 25% in ultrashorts.

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Stock Market testing yearly highs?

Last Friday was the perfect setup for a news driven rally and then a fade into the close which looked probable till the last hour of trading. Looked like at least part of the pop above SPX 1130 was due to short covering but improvement in the employment outlook seemed to be the primary catalyst. Now the stock market seems on a clear path to re-test the yearly highs as there is no resistance between here and SPX 1150. The RSI signals for the SPX and DOW are both almost at 70 which typically signals a reversal and looking at the charts it’s pretty obvious a re-test of highs will result in a slight profit taking pullback.

The key question all professional traders, investors, financial analysts are asking is WHEN will we see the next correction? Will it between now and May as many expect or the last half of the year? There are even a few brave hearts saying this rally will continue till SPX 1200. There are certainly enough potential Black Swans out there to cause several corrections or even a long protracted downturn. Even the most bullish pro’s out there are deeply concerned about the effects of the Fed’s tightening monetary policy and potential tax hikes in the USA after the November election.

All week we had somewhat negative news, low consumer confidence, low home sales, continued economic concerns over Greece, China, Great Britain, and Spain. Regardless of any of this the market continued to “climb the wall of worry”. Our first clue that the rally would continue was on Thursday when GS started breaking out which continued into Friday. This was very good for UYG and FAS but not for FAZ or SKF. The DOW chart has been a story of head fakes lately when it appeared 10,400 was the ceiling. I did predict correctly that strength around 10.4K would lead to 10.5K which is major upper resistance. The DOW clearly broke above that level last Friday and I now believe we’ll see some little pullbacks and a 2 steps forward 1 step back dance all the way to yearly highs or higher near term. The yearly high is going to be met with a lot of resistance as well and would be a good place to consider some more shorts or at least some profit taking.

The VIX Index is showing a major relaxation of fear and its a measure of puts –vs- calls which shows Options traders turning more bullish. The last time it got this low resulted in a 900 pt DOW drop and a 8% (10% intraday) correction. This is the primary reason many of us were adding to our ultrashort positions last week including the highs of the day on last Friday. The ultrashort ETF’s were on an uptrend till the last 200 pt burst upward on the DOW and the SPX breaking above 1125ish.

AAPL, one of my favorite Best of Breed Stocks hit all time highs Friday on news of their impending I-Pad product release and buzz that corporate America may adopt it’s use.

How are we positioned for next week and what do we expect near term? Members of Best of Breed Investing are privy to detailed trading plans via our discussion board, email alerts, and a Live Chat Forum where we discuss trades in real time.

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Golden Cross signal on US Dollar

On Feb 18th the 50 day moving average signal for the US Dollar ($USD) crossed above the 200 day moving average. Historically this is a bullish signal for whatever equity is involved and in this case it’s the dollar. If the US Dollar does in fact continue to rally what does this mean for the price of Gold, Precious Metals, Commodities, and Stocks in general?

I first started looking at the dollar relationship in April of 2008 and then warned we would see a big correction in all the aforementioned sectors if the US Dollar rallied. Let’s look at Gold and Gold miners. GLD has a price objective of 94 and the probability of hitting it will be directly tied to the dollar pricing near term.

GDX (Gold Miners) has a positive price objective but must break above the red downtrend line if bullish momentum is to continue.

Let’s look at the VIX to see what measure of fear is in the market, as you can see it’s almost at the last low which is where the last 8% pullback was triggered.

What does this mean going forward, will the rally continue?

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Bradley Turn Date imminent

Futures markets are up this evening which is hopeful but not a guarantee of an up day tomorrow. The dollar is down slightly and there are more rumors of a bailout for Greece. There are definitive technical resistance levels that must be overcome for this rally to continue that will be discussed further in this blog entry.

Who knows, maybe China will revalue currency and we’ll rally for a month or two.
There are also other trading plays coming out of the Chilean earthquake in the members area here and some are Best of Breed Stocks.

I’ve been giving a great deal of thought to the current economic/world conditions and the data is a complete conundrum of chaos and confusion (CCCC for short). That’s why I like hedging/buying protection in uncertain times.

On one hand since January we’ve seen RECORD earnings and BTE (better than expected)reports from the majority of companies in America along with a slew of improving economic indicators. Certainly looked like the recovery was well under way but……..

On the other hand the stock market ignored said BTE earnings, existing and new home sales are down, jobless claims are up, and last week the 30 yr mortgage rate rose again. Congress is gridlocked and the current admin doesn’t seem to be giving any confidence to investors or world markets and this doesn’t count the financial limbo in the EU.

Next week is CRITICAL for bulls. How are we positioned going into next week? What does the infamous Bradley Chart predict?  

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