Speed Bump

All that panic.  All that concern.  All that selling.  In the past week, the mood certainly changed when you watch television and listen to commentators.  We went from no bears in sight to a place where no bulls were found.  I heard that we had peaked for the year and now the very same people are saying we’re ready to break out.  These extreme mood swings is what can cause you to lose some real money and miss out on opportunities.  There were several indicators that I watch that led me to believe we’d have a correction.  As I’ve said before, what do we do with that correction?  I know traders and money managers that sold literally everything last week.  Now, they are scrambling to get back in getting whipsawed.  The weakness we’ve seen in the past week from the stock market was definitely a red flag.  But, I have stayed focus on two major things.  One is the fact that the leading economic indicators continue to improve.  Secondly, there haven’t been any real sellers out there.  It’s looked like just profit taking.  Corrections can happen any time for any reason.  We had a correction of about 6% from September 23rd until Friday morning.

On my radio show last week, I described a correction that could take us down to these levels.  The main reason was the 50-day moving average was at that level.  In addition, the 1040 level is the old high in early August.  We had trouble getting through that level before breaking out in September.  When we look at most of the indices, the major uptrend since March was in jeopardy of being broken.  So, if it was really just a temporary correction, we would hold some of these levels.

So, are we out of the woods yet as far as corrections go?  Not necessarily.  The stock markets aren’t always this predictable.  They move up and down.  Sometimes, they go down on good news and up on bad news.  Friday, the market rallied back on what was perceived as bad news.  Yesterday, the ISM came in better than expected showing growth and the bulls were in charge.

The bulls and bears will be watching the 1080 level on the S&P 500, which was the old intraday high on September 23rd.  If we break through that, then we’ll head higher.  I still believe this rally has 1200-1300 on it over the next few months.

The 50-day moving average held, Goldman Sachs said some nice things about the banks, the dollar is once again weaker, oil reversed and went higher yesterday, & October is starting out exactly like September (weak the first day and stronger after).  I think mainly what the bears are hanging on to are the weaker technicals.  They are describing lower volume, seasonal patterns, etc.  This rally has been about the fundamentals improving so trading this market purely on technicals hasn’t worked very well.  Stay focused on the bigger picture right now.  That’s not to say put your portfolio on cruise control, but loosen the leash.  Use the weakness we’ve seen to cull out weaker stocks/ETFs/funds and re-allocate into the streonger areas.  I’ve noticed semiconductor weakness the last few days and I’ve sold some semiconductors.  That could just be profit taking but we need to find where that money is going if it’s not staying in cash.  It could be energy so I’m keeping an eye on energy for the next few days.


I’ll be on CNBC Asia tonight at 6:10 p.m. CST & Fox Business tomorrow morning at 8:10 & 8:30 a.m. CST.

This post published at www.karleggerss.com

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October 2009
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