The Bulls Flex Their Muscles

During my radio show today, the Dow Jones was up about 150 points or so.  It began to sell off during my hour on the radio and I mentioned that it would be interesting to see if there was some profit taking going into the afternoon or would the bulls flex their muscles and push up the Dow Jones to +250 by the end of the day?  Not bad.  I was off by 4 points.  The bulls took control and really are making the bears feel quite concerned.  Will it roll over?  If so, when?  So far, there have only been head fakes, days where it looks as if we’re rolling over, and then a couple of days later, off to the races once again.  

A few posts ago, I wrote that strong markets sometimes just move sideways and that’s all the sell off you get.  It’s almost as if the overbought condition works itself off by simply seeing stocks move sideways.  For the last 6 or 7 trading sessions, even though it was volatile, essentially the market was just going sideways.  Today, it broke out once again and appears headed for new levels.  As the rally has progressed, I’ve used targets of 900 on the S&P 500 and 9000 on the Dow Jones as places I thought we could go before a significant pullback. That seems more probable now more than ever.  I’ve been whipsawed a little lately as not taking anything for granted means having to sell some positions and build cash only to have to come back and buy to increase my equity position a day or so later.  Today, I finally purchased the Nvidia (NVDA) position I’ve been wanting.  

In addition, I bought some platinum to compliment my copper.  Industrial metals are booming.  In fact, going long industrial metals and short precious metals has been a great trade.  Back to the whipsaw. I’ve been preaching staying flexible and don’t be afraid to trade.  If you get stopped out of positions and then the market begins to run again, get back in there. That’s the only way to make money right now safely.  Buying and holding won’t work and we’re going to have some big sell offs even if 666 was the bottom on the S&P 500.  That means be prepared for all situations.

Economy

More confirmation came today from some leading economic indicators that perhaps we are seeing some real improvement in the economy. Perhaps the commodities running up so much are justified.  We’re still seeing some really disgusting economic numbers when we look in the rear view mirror.  Investors are obviously looking out the front windshield and liking what they are seeing.  In addition, it doesn’t hurt when banks are more positive as Wells Fargo was today.  During this rally, we’ve seen transports much higher, industrials, technology, and financials.  The weakest group has been the safe recession proof (as if anything was recession proof during the last 12 months) during the rally.  So, investors are buying the early cycle stocks.  Whether that’s the right move based on the economy in 6-9 months is yet to be determined.  But, the move has been big enough that it justifies participating in.  In addition, there’s no letting up right now in those areas.  If you simply look at the S&P 500, the RSI (relative strength index), it has maintained a level above 50 for almost a month.  That may be a great sell sign when that falls below 50.  For now, the market touches that 50 level and bounces off of it.  In addition, keep an eye on the weekly charts.  The daily look fine but are still extended to the upside.  The weekly though is looking better and better every day (or is it every week?).

Bottom line.  Enjoy the move but don’t let your guard down.  We’re still not in a bull market from what I can see but slowly but surely we’re getting some improvement in several areas.

I’ll be on live tomorrow morning from 9-11 filling for Jack Bouroudjian from 9-10 a.m. and doing my show from 10-11 a.m. on Biz Radio (www.bizradio.com).  Have a wonderful Easter.

This post published at www.karleggerss.com

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