Because Of Tuesday’s Action, This Is What I’m Doing
Since January 16th, you know where I have stood when it comes to this market.
Recently, based on extreme oversold conditions, I called for a bounce in the
BOND MARKET as well as INTEREST-RATE SENSITIVE stocks. I must tell you, the
move in some names, particularly HOMEBUILDERS, caught me by surprise. Then, in
my last report, here are some of the words I penned:
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“Shorter-term, I think we can bounce more…but I
must tell you that the bounce the market is attempting is about as anemic as
they come. All our indicators are deeply oversold, which normally leads to
 decent bounces. So far, any move up on just an intraday basis…is getting
slapped down by the close. In fact, if not for a last second flurry to the
upside, Friday’s market was working on another negative reversal akin to
Wednesday’s. For the hundredth time…go slow. If the market
wants to break to the upside, it will let us know. So far, ain’t happening. In
order for this market to make this bounce get at least a decent leg, keep a
watch on these numbers…DOW 10094, S&P 500 1106 and the NASDAQ 1937…all
numbers that break above last Wednesday’s highs. Keep in mind, even if these
levels are breached, I am not sure sure you should get too excited…but it
will be a start.”
^next^
On Tuesday, those
levels were breached…a potentially very positive sign. I now print part of
what Investors Business Daily writes in this morning’s “Big Picture.”
“The price and volume combination came on the
sixth day of the Nasdaq’s attempted rally, right in the sweet spot of when you
like to see the market show real power. The one caveat? Volume finished
slightly below average. Most successful follow-throughs arrive on
above-average trading.
The rally turned broad as stocks of all sizes
advanced. The Dow industrial average and S&P 500 each gained 1.6%. NYSE volume
grew 26% and finished 5% above its 50-day average. Their percentage gains were
on the border for follow-throughs. However, the market needs only one index to
confirm an attempted rally. The Nasdaq met that objective.
As noted recently, leading stocks already were
flexing some strength. They rallied hard Tuesday afternoon, with many
delivering big gains in heavy volume.
What does the follow-through mean for
investors? First, remember that while all major market advances have shown
follow-throughs, not all follow-throughs lead to extended rallies. Don’t
blindly rush back into the market and bloat your margin balance.
Instead look for stocks with powerful earnings
and sales growth as they break out of sound price bases. Buy them as close as
possible to their pivot points.
If your initial purchases turn profitable, look
to add shares or buy other leaders. Don’t let any initial losses grow beyond
8%. Sound trading will automatically push you into a successful rally and pull
you out of a faltering advance.”
I couldn’t say it any better. I have been
waiting for this type of action for over 4 months…and we are finally getting
it. I am already hearing both sides yap away. The bulls say the “correction”
is over. The bears say it is a short-covering rally which will be short-lived.
Gary says…as always…let the market be your
guide. It is a simple procedure. The market held its low and because
of Tuesday’s action, I would be done with the short side. Because of Tuesday’s
action, I would be probing the leaders. If they keep working, you become more
and more emboldened. If the leaders start to fail, you act accordingly. Don’t
worry about what title people are giving to the market…bear market…bull
market…dull market. It all does not matter. There is major resistance
straight ahead. If you think this is going to be easy from here, you may be
disappointed.
Do not forget, my book is pre-selling at garyk.com. It should be shipping in the next week or so.
Also, my good friend, Neil Cavuto’s book is
also pre-selling right now. It is a must read…entitled “More Than Money.” Go
to mycavuto.com to order.
Gary Kaltbaum