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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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 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.

Join our membership group today to get detailed portfolio and trading information as well as sharing and learning trading/investing/general financial knowledge with a great group of folks on the Discussion Forum. You can try it for one month for free and cancel anytime.

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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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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Is the Stock Market Rally really over?

“The best strategy in my opinion in times of uncertainty or close to market peaks is to have 20-30% in Cash, 20-25% in ultrashorts, and 50-75% in Best of Breed stocks or bull ETF’s. Though my gains were limited when the DOW came up from 9800 my losses were controlled rather nicely on the way down using this strategy. When the DOW was below 10.2K we had no clue if lower lows were imminent or if the highs of this rally had been achieved. Prior to last week my drop dead warning level was DOW 10K, not it’s DOW 10.2K and hopefully I’ll get to raise it to 10.4K this week.”

I wrote the above in my last blog and the balance of bulls/bears has proven to work very well especially on news driven bearish pullbacks. Today was a perfect example of when to “Leaving Well Enough Alone” which I didn’t do. As the market tanked below DOW 10.2K, Conditional Sell Orders executed for all USD, UYM, EDC, and some FAS. Right before this happened I had a sneaky feeling it was a fake out and changed other CSO’s to DOW 10,150. In retrospect I wish I would have done it for all sell orders and not made any changes. Some days it goes like that and you just have to shake it off and go forward.

Looking at the DOW and SPX PnF charts shows a different story. If you change the box size to see a closer view of the action both of these indexes now have negative Price Objectives. That doesn’t mean the market won’t rally further but it does mean both have to break out to a higher high to regain positive direction on the charts. In the case of the DOW this means it must close at 10,380-10,400 to break the downtrend. The SPX must close around 1107 to do the same.

Today’s selling of some bulls and buying of some bears left me with this portfolio balance and bull/bear ratio.

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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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Stock Market near term predictions

The next 2 weeks promise to be very interesting with China on a holiday all next week. From what I’ve read the Chinese markets typically do well after this holiday. Stock market predictions range wildly in the near term.

Experts are all over the map on very near term predictions. Everything from a very near term test of 9800 and a huge rally, to a very near term test of the yearly highs followed by a huge crash. I’m sure the truth will be in the middle somewhere.

Richard Russell the famed DOW Theory expert is very BEARISH going forward the next couple of years as are several other economic experts and financial writers. Technical support levels seem to be where programmed trades are occurring each day, trade the tape and not your emotions.

Berkshire B shares (BRK/B) have done exceptional since I suggested them on our FREE discussion forum  http://bestofbreedinvesting.com/board/. This equity is joining the SP500, watch it for pullbacks as it’s a good long term investment.

Here are DOW 1 month and 3 month charts where you can clearly see the support/resistance levels I’m discussing. The SPX charts look similar.

So what can we expect this coming week?

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Stock Market Support and Resistance levels

Looking at the weekend news, support/resistance levels, and the overall negative stories from Asia and Europe leads me to believe the market is going to have a tough time rallying unless some stellar news comes out.

Here’s the Support/Resistance plan for premium members of this group to augment the info in the previous blog about building “bullet proof portfolio’s”.

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