No Breakdown Yet

The benefit of the doubt still belongs to the bulls we believe as long as the major indexes don’t ALL break below the levels of 11/28. We’ve now got a decent number of stocks meeting our criteria for long exposure as well, and they are for the most part performing well in the bull run.

We continue to recommend bond exposure be lightened as TLT’s (TLT | Quote | Chart | News | PowerRating) get above 92 but that bond exposure be maintained as a strong portion of portfolios until evidence mounts that leading economic indicators are turning higher.

Housing stocks broke above the 50% barrier and it looks as though the turn up in the NAHB Housing Index has once again predicted a bottom in these stocks. They are currently leading in terms of Relative Strength though many in the group are forming bases that could be bought on breakouts.

Our thesis that the dollar will be unlikely to drop below the 78-80 level without a lengthy period of consolidation or even a substantial bottom got some more credence this week as The Economist showed the falling dollar on its cover. Major magazine covers generally come into play when a move is NEARLY OVER, rarely when there is room for it to go further. With major dollar support at 80, and news cover death having been delivered to the dollar bear it is not impossible for the dollar to keep moving down, but it is extremely unlikely.

So far oil seems to be basing while oil stocks continue to lead the advance. We suspect that energy stocks and China region stocks remain prime candidates for a major mania later this decade and that buying these on corrections during the expected soft-landing will make good long-term trades.

Overall we still continue to suggest less than aggressive allocation to global equities, however we would no longer look to add or accumulate TLT’s on corrections and would begin taking partial profits on TLT’s over 92. We still expect that the slowdown is not over and that the Fed will not letup on a tightening bias until the slowdown develops more clearly so that inflation does not reappear and get entrenched, but bonds gains have been swift and further bond yield declines will become less likely unless a recession develops. The risk of recession is still large enough that we would not suggest selling ALL or even half of TLT’s yet, but some profit taking will soon be in order we believe. We also continue to like some pairs, and some select big-cap dominated groups along with the small number of stocks meeting our criteria for below normal allocation to stocks with partial short-hedging in weaker groups.

Lots of bonds (TLT’s) and as well as similar sized big-cap exposure still seems prudent to us here until the environment becomes clearer. Long/short pairs and some broad big-cap exposure to some of our preferred groups and stocks meeting our criteria can be participated in as well. The tradeoff between bonds and stocks should be closely monitored as bonds are providing a critical cushion to the blow of a slowing economy in what we suspect is a budding soft-landing that often prove difficult to trade.

Our US selection methods, our Top RS/EPS New Highs list published on TradingMarkets.com, had readings of 66, 55, 107, 124 and 95 with 19 breakouts of 4+ week ranges, valid trades meeting criteria in STEC (STEC | Quote | Chart | News | PowerRating), NUE (NUE | Quote | Chart | News | PowerRating) and no close calls. This week, our bottom RS/EPS New Lows recorded readings of 5, 4, 3, 2 and 3 with 2 breakdowns of 4+ week ranges, no valid trades and no close calls. SPI (SPI | Quote | Chart | News | PowerRating), BWP (BWP | Quote | Chart | News | PowerRating), CHDX (CHDX | Quote | Chart | News | PowerRating), OTEX (OTEX | Quote | Chart | News | PowerRating), OPNT (OPNT | Quote | Chart | News | PowerRating), BRCD (BRCD | Quote | Chart | News | PowerRating), TV (TV | Quote | Chart | News | PowerRating), STEC (STEC | Quote | Chart | News | PowerRating), NUE (NUE | Quote | Chart | News | PowerRating) remain open trades on the long side from this methodology.

Mark Boucher has been ranked #1 by Nelson's World's Best Money Managers for his 5-year compounded annual rate of return of 26.6%.

For those not familiar with our long/short strategies, we suggest you review my book "The Hedge Fund Edge", my course "The Science of Trading", my video seminar, where I discuss many new techniques, and my latest educational product, the interactive training module. Basically, we have rigorous criteria for potential long stocks that we call "up-fuel", as well as rigorous criteria for potential short stocks that we call "down-fuel". His website is www.midasresourcegroup.com.