The Rotation Continues

I continue to get feedback from the blog asking if the new bull market has begun.  I get video clips sent to me, articles, and magazine covers from readers of this blog saying should we be buying right now? We’ll address that in a minute.

First, the rotation continues out of anything having to do with global growth and into beaten up areas like retail, homebuilding, & financials.  Gold got slaughtered today and oil which should have been up based on tension in Russia was up in the morning but sold off by midday.  Many of the gold mining stocks were down anywhere from 5-10%.  It felt like freak out mode from the materials stocks.  And I have to say that many of the charts don’t look like they are “there” yet.  Based on my shortest of technical indicators, I believe if gold doesn’t go up tomorrow and start a rally, we may be looking at more downside.   As far as oil, which came first, the chicken or the egg?  Many will say the dollar is rallying because oil is selling off.  Others sill say that the dollar started the rally and that lead to a global selloff in commodities.  It’s hard to tell.  I believe Europe is slowing more than the U.S. at this point and therefore the dollar is rallying.  That happened at the same time oil was overbought at $146 per barrel.  You can smell the panic in the commodity sell off by hedge funds around the world.  Remember the easy money this year was long commodities and short financials.  That trade appears to be over and many hedge funds to get extra return were leveraged to put that trade on.  So, the selling has been swift and hard.

I continue to like India and some parts of China in this rally.  Also, the semiconductors look very good as do the refiners.  One standout today was the small caps.  I’m still short the small caps and they may have turned the corner.  They were hit the hardest when the subprime financial crisis came.  Money was tight and they struggled.  Now, perhaps because monetary policy is very loose, they could thrive.  At least that’s what the market is telling us right now.

But, the market is also telling us that this rally is very similar to previous bear market rallies.  Volatile, low volume, big up days, and rotation out of leadership into the previously weak areas.  We have to respect the rally but not change the entire portfolio.  Continue to take profits if your position is beginning to show some weakness or rolling over.  I don’t believe we’re out of the woods just yet.  I have been buying the last couple of weeks but I’ll be looking to reduce exposure and increase cash as positions roll over.

Also, in the very short-term, many oscillators are getting overbought.  So, even if you’re bullish going forward, we may be due for a few days of a pullback.  If we get a weak pullback, then maybe this rally continues like the March and April rally.

One note. On this blog, I like to give my ideas and thoughts on the markets.  But, it can be dangerous for you to take this blog and trade from it every day.  I’m a paid money manager and I can’t put every stock and bond trade I do in this blog.  So, be careful because this market is still very volatile and dangerous and the risk of whipsaw is very high.  Many television commentators and writers of financial information change their feelings on the market daily and these emotional swings sometimes translate into more volatility.  I write this blog to gie my opinions and share some ideas but it’s no substitute for doing your own homework.