Prepare For Market Rally
I have been reviewing the charts and am convinced that the correction is just about over and the market is heading higher and soon. The Nasdaq has been leading this market down. If we look at a 1 year chart of the QQQQ it has pulled back just to the bottom of its uptrend channel. This is the first time since March, 2009 that it has pulled back to this relative level and we now have 2 points on the bottom of a parallel uptrend channel.
The chart on SPY looks identical to that of the QQQQ. As I indicated in the last update GLD is also at the bottom of it’s long term uptrend channel. Since Jan. 10 the SPY has been in a descending wedge that many times indicates a reversal. With everybody expecting more selling, sentiment extremely negative, selling volume large on the way down, the vix already spiking about 45% and the markets way oversold, I believe we are heading up with the Nasdaq, Chinese stocks, financials, Gold and miners leading the way. I also expect the U.S. dollar to decline.
The alleged headwinds to the market are:
1) Greece – About 6 months ago Dubai was going to bring the world economy down and now it’s Greece. While I am sure that Greece is a lovely country, the notion that financial problems there are going to bring the world markets down is laughable at best.
2) Slowdown in China – China’s economy is going to slow down from about 10.7% growth to 10%. We wish we could have a slowdown like that here.
3) The World Economy Grew Too Fast – I find this one to be really hilarious. First the pundits said the Obama plan would never work. Now that the U.S. racked up 5.7% GDP growth last quarter with many companies turning in record profits they are saying we grew too fast with the implication being that it can only be downhill from here. With the economic recovery just getting started and much of the stimulus kicking in this year we should expect further upside economic surprises.
4) A Jobless Recovery – Many companies just announced that they will start hiring in the spring.
Some stocks you may wish to consider buying are AMZN, AAPL and GOOG. These are high beta stocks and are extremely volatile but they will be the first to hit new highs if the market does move up. Some Chinese stocks to consider are CTRP and CRIC. CTRP has a virtual monopoly on Chinese travel arrangements and CRIC on Chinese real estate information services. If you wish to play gold, GLD is the etf for a straight play on the price of gold and GDX is an etf for gold miners. A new etf with the symbol GDXJ that covers junior miners recently came to market and this could move even faster than GLD and GDX.
Except for extremely long term investors this is not a buy and hold market so sell 1/3 of your shares if the S&P hits 1120, 1/3 at 1150 and 1/3 if it hits 1200. Move your stop loss up at each target price.
There is always a caveat. In the event the QQQQ does drop significantly below it’s uptrend channel the markets could be in for more selling pressure so it would only be prudent to put in tight stop losses on any new stock purchases.
