Higher prices are ahead! Here’s why…

  • September 13, 2005
  • Tim Truebenbach

The
market is acting according to plan.  We are seeing a slow, boring
consolidation following the recent run-up in the NASDAQ to 2,200.  This is
great and I will explain shortly.

Please let me begin by
explaining why the NASDAQ chart is the only one I keep referring to and
displaying.  I strongly believe that the NASDAQ is our leading index and is
exhibiting the most predictable action out of the major indices.  After all,
we have the Dow’s market crash of 1929 to model after since the prior bubble,
subsequent crash and following recovery perfectly model that of what the
NASDAQ is currently showing us.

 


 Stock markets just do not rally when everyone
thinks they will.  This cannot happen because everyone has bought (in
anticipation of higher prices and profits) and no one is left to buy and drive
prices up.  For this reason, the NASDAQ appears to be doing just what the
doctor ordered after rising over 17% from late-April to early-August, 2005:
pulling back and consolidating.  The longer it does this, the more doubt that
is created in investors’ minds.  I’ll admit I do not know when this will end,
but I would estimate in a matter of weeks.  When enough doubt has been created
and enough heads are looking the other way, the market will return to its
rise.  If you own stocks or are looking to buy, this is one of those
circumstances that is offering a very strong investment opportunity to you on
a platter (risk versus reward.)

With all investing, from
T-bills to private placements to real estate, there is always risk.  The trick
is finding an acceptable amount of risk that an investor can handle and
matching it to an equivalent amount of reward.  If you cannot figure out both
of these things, it is better to go back to education rather than investing. 
In the current market, heavy support lies between 2,000 and 2,100 on the
NASDAQ which is about the extent of investors’ risk.  If the index can break
above 2,200 in a meaningful way (high-volume institutional support), the
upside, or reward would take us to the 2,800 level.  Have a look for yourself
on the following monthly chart:

 


 

I like this ratio!  Of
course, I have been talking about the NASDAQ in general and not of individual
stocks.  Many names have been acting well and this only confirms what I think
about the overall market.  Many of you know that Google (GOOG) is one of my
favorite names and it also provides the best example of leadership.  It has
risen on heavy trade while falling on light trade.  The market has done the
same thing thus far. 


 You may have other names
that you are looking at.  One thing I will disclose at this time is that it is
always important to have two exit strategies.  The first should consider the
reward or when to take a profit and the second should consider the risk and
when to take a loss if things are not going according to the purpose of the
investment.  Whether you agree with me or not is up to you and your own
analysis.  If you choose to buy a market mirror such as the Q’s, or you go
with individual names is also up to you.  The biggest point I wish to make is
that I have found a very strong theme in the market I am seeing and it points
to higher prices. 

Good Trading!

Tim Truebenbach


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