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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Buy or Flee, Is more Bloodshed due on Wall St?

Spent some time this weekend reading various financial sites and expert opinions to gain some insight into last Friday’s “Blood in the Streets” action. Of the 4 watch lists I have, NONE had a single gainer across almost every sector last Friday. No news to those who watched the bloodshed unfold on the heels of the GS fraud charges. The Elliott Wave guys are convinced we just finished a Wave 5 move and a real correction is going to occur. More than a few experts think we’ll see a drop to SPX 1150 and maybe even 1130 or lower.

Some folks like Cramer say to wait for the mid-morning dip on Monday and buy the companies that just reported BTE earnings, BAC, JPM, INTC, CSX, etc…. I was very tempted to buy some GOOG and ISRG right before the close Friday but the PnF charts show the probability of a little more downside. The Ag’s MOS, MON, POT have also looked tempting as well as Steel but again all appear to be going down with the market and will probably hit lower entry points. These are all Best of Breed stocks I have traded in the past and usually outperform their peers. Not sure we’ll be able to say that about GS going forward and I sold all shares Friday at >100% profit as most were bought over a year ago. Also sold some X (US Steel) for 245% profit last week.

Here’s the latest major PnF charts, if these don’t find support at the bottom of the last column of X’s on the right side of the charts expect to see a pullback or correction. The SPX support levels were posted in a previous blog but SPX 1150 is probably the most important level for continued upside.

The major indexes broke below my 1st line of support big time but rebounded above it before the close on Friday. The big question will be how overseas markets and investors react come Monday morning? Will we see a relief rally or will investors decide it’s close enough to May to sell and go away?  I’m now 41% cash and I’ll put some stops on my shorts JUST IN CASE this was a brief pullback before we test SPX 1230 which is the 67% Fibonacci retracement point from the lows of last year. I’ll also have stops on my remaining Bull positions in case the investment herd panics this week! The market needs a correction badly and GS may have been the catalyst to finally give some downside longer than a day or two.

I’m sure there will be Dead Cat Bounce/Relief Rallies along the way, the key is to watch for a higher high or lack thereof. That signals the direction change for an intermediate move. If more Financial firms are implicated or any of a number of geo-political events occur we could get the 10-20% correction many pro’s have calling for.

Be safe, hedge your portfolio or go to cash! There will always be another great time to buy Best of Breed Stocks and/or Bull ETF’s. I’ve been writing for weeks that all the technical indicators were showing it’s time for a pullback, we’ll find out in the next few days. Right now it’s looking like having some Ultrashort ETF’s may be prudent.

Join our Free Discussion Board and get the opinions of some experienced investors or share your own. I like a lot of sectors going forward, Tech, Energy, Materials, Financials but right now I’m very skeptical of more upside!

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!

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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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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Will Fed Funds rate change tank the rally?

This excerpt is from the last Members Only blog entry here written last weekend.

“I tend to think we’ll see a rally up to DOW 10.3K to 10.5K followed by a huge correction starting in March/April/or May. This all depends on the Dollar’s moves vs foreign currencies and World/US news.”

The DOW rallied right up to 10,400 before pulling back slightly and this intraday high corresponded almost exactly with SPX 1108. The DOW closed slightly above the 50 day moving average and the SPX touched that area as well. Both the DOW and SPX MACD signals went positive this week as well.

Everything was looking pretty rosy till the release of the Fed Funds discount rate change after hours today which sent futures markets down.

From what I read the decision by the Feds to tighten emergency fund lending is a move to get banks to borrow at discount rates from each other. It’s possible this will help the lending situation and if you believe they know what they are doing then it’s probably a good overall sign of economic recovery.

Futures markets are not reacting kindly to the Fed news but many pro’s think the negative sentiment is being overblown.

We also have Options Expiration to deal with tomorrow and the return of the Chinese markets next week. What can we expect tomorrow and next week?

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Is the Smart Money buying stocks now?

After massive swings in the stock market the last few weeks and especially the last few trading days all investors and traders have to be perplexed. Can it be that the Smart Money who just got out of equities have decided the water is safe again based on a technical move downward or the news rumors about Greece’s credit crisis.

I’ve been rather amazed at the volatility myself but the orderly close to 200 pt ups and downs are normal in high volatility stock market weather patterns. I find it hard to believe that the Smart Money folks have decided this 4th and largest pullback/near correction since last March IS THE TIME to go long on stocks again.

It is very possible that programmed trades and hedge fund managers trying to jostle for the right position for the next 90 day or so of trading are causing the majority of the volume moves daily.

Here’s a few PnF charts of ETF’s I have and continue to like for the next few months or longer. While none of us have a magic crystal ball it’s important to note that these charts are what Best of Breed Stocks look like coming off of major lows in normal market conditions but these are all-

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Is DOW 10K support or resistance, the saga continues!

Advancers ahead and DOW 10K is almost holding support. SPX 1065 needs to hold into the close. For some reason I think we might see a late day buying spurt today. The DOW has to make it over 10.2K or a retest of the last lows is imminent. There is a lot of pessimism out there and I’ll be surprised to see 10K support going into Fridays close.

Semiconductors and Tech seem to have support today with Financials lagging. Watching GS closely as a metric for the Financial sector.

Very near term I don’t have a bullish feeling about this market at all, too much confusion overseas, too much national debt, lack of clear economic recovery direction.

So with all the confusion amongst pro’s how can we play this uncertainty? My portfolio for doing this is here “How to make money in most market conditions”.

Here’s a chart of EDC (which I bailed on at 98). It moved from 86 to 96 since Friday. Looks like 99-100 is upper resistance for this one.  Pretty amazing bounce off of Friday’s lows and of course I’m not holding it now. When it peaks it’s time to-

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Will DOW 10K hold support?

Last week was extremely frustrating for the Bulls as the markets repeatibly looked like support was developing somewhere between DOW 10,100 and 10,200. The intraday lows hit below 10,100 and very close to the interim bottom I called for recently of 10,050. What’s most bothersome is we’ve yet to see anything but lower lows in the intraday patterns which is Bearish to say the least.  The Davos summit ended with no agreements and news on the US/China relationship this weekend wasn’t good.

If DOW 10K doesn’t hold there is a good chance we could stairstep down for awhile in a pattern reminescent of one year ago. There will be very good shorting opportunities for bears if this week’s pattern continues last week’s downward direction or worse yet, picks up downward momentum!

On the bullish side of the coin looking at the PnF charts there are a lot of what looks like bargains setting up. We now know that very short term that we’ve been in a great shorting opportunity. My ultrashort ETF’s have moved up 20-25%, others have moved 30%.  What’s next?

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