Earlier this year I presented ample evidence that suggested markets were due to correct after their April highs. At the time, I recommended that readers of this blog consider raising cash, focus on low beta stocks, and use hedging ETF’s. I followed my own advice, and managed to dampen my clients equity portfolio’s risk. I hope that your portfolio has also fared well by following risk-reducing strategies over the past few months.
Right now, I’m becoming a bit more bullish towards the markets. Yes, I’ve read and heard all of the arguments from the bears about why we could be in for anther major leg down. One of my clients even sent me a Youtube video produced by Harry Dent on why we’re in for a major bear market. But my viewpoint starts and finishes as that of a technical analyst. Technical analysis 101 (aka Murphy or Pring) always starts with the trend. And the trend is up. Its up in the very short term, since the first week of June (further supported by the 200 and 50 day MA’s). And its up in the mid-term, since the lows of this bull market in March of 2009. Higher highs and higher lows = bull market.
The market must be considered bullish until the prior major low is taken out. The last significant trough looks to be June’s low of about 1270 on the S&P 500, if one is focused on the intermediate term. If 1310 (the last low in the short termed trend) is broken, we’re back to basing. If 1270 is broken, I’ll become bearish. But for now, the market is in an uptrend. Here’s my charts for the short and mid trends as mentioned–top chart is the intermediate trendline since March 2009, bottom chart is neartermed trend since early June:
As such, I’ve eliminated my hedge positions, and have been looking to place some of my cash into the markets in select positions. Three of my favourite sectors were mentioned on last weeks entry: Canadian banks, gold and potash/fertilizer stocks. I must emphasize that proper entry positioning is crucial for these and other securities right now. The market will likely continue to gyrate up and down fiercely until the Fed gets closer to a QE3 decision. I am attempting to buy on pullbacks to key support levels on my favoured positions. If you agree that buying opportunities are starting to present themselves – be patient and buy on the dips. It is my opinion that your patience will be rewarded.