Time to buy?

Is it time to buy into the market, now that we’ve had a correction?  I wouldn’t just yet if you are trading within time frames like I use (3-6 months). The market is likely to see a near-termed rally based on a mildly oversold situation  (note the stochastics buy signal, and RSI’s mildly oversold level). The AAII (American Association of Individual Investors) survey is also showing a 6-month low in bullishness. As a contrarian sentiment indicator, it is now just entering into the oversold zone, and signals the potential for a rally. Further, it was no surprise to see a bounce off of technical support around 1340 – 1350 on Wednesday. In fact, on Wednesday morning an industry friend of mine emailed and asked if I felt the markets would continue lower (the market had been down 6 days in a row by that point). I told him that I expected a bounce from 1350 that day on the S&P.  Right on schedule, the S&P did  as expected and bounced from an intra-day low of 1345 (hey, close enough!!!). I am looking at any upside in this market in the coming days as an opportunity to raise more cash. Keep in mind that we want to see 1350-ish hold for the S&P 500. If that level breaks, things may get ugly and any rebound will be delayed. Somewhere around 1390 – 1400 might be a good sell target, again – so long as the S&P can hold and rally off of the 1350.

Please note that my near termed cautious/bearish stance shouldn’t be news to readers of this blog – I have mentioned in prior posts that I was raising cash in light of several factors, particularly the QE pattern noted 3 weeks ago via my “Sell in May” post.  Near-term, I also expect to add  hedging positions to my long-equity platforms I manage for clients. ETF’s mimicking the VIX and/or Inverse ETF’s will be considered. Finally, I expect to continue to focus on defensive sectors such as consumer staples, utilities and dividend payers for equity I hold.

It is my strong belief that despite the near termed weakness, markets will break out to the upside later in the summer, and ultimately reach their upside targets sometime in early 2013. I continue to target 1550 for the S&P500 by or before spring 2013. Thus, my defensive strategies are to protect my clients capital in the near-term, and do not reflect a longer termed view on the markets.

Note: I am on BNN MarketCall Tonight next Friday My 18^th at 6pm. Start your long weekend with some technical analysis! Tune in if you can.

 Gold

Gold bullion is looking kind of interesting right now. Technical support comes in at $1560-70. It may be worth a play, should it hit that price. Note that I would view gold as a trade only. I really don’t like the look of the weekly chart right now (see below). Sorry gold bugs. But let’s call a spade a spade. While the 10-year chart (not shown) supports a longer termed uptrend, the shorter uptrend from 2008 shows a definite break. Gold is in a consolidation pattern – specifically a right-angled triangle. It may break out to the upside, which often happens with these formations. But it may continue to form the pattern for a while yet before breaking out. If you have a huge level of patience, buy and hold gold (and hope a breakdown below $1560 doesn’t happen, given the highly bearish implications of that occurrence!). I have less patience for such things. So my trade, should I enter it, would be to buy at $1570 support and sell at around $1700 (top of descending trendline for triangle). Stochastics is nearing oversold levels, and looks ready to signal a buy soon. Seasonally, according to my pals over at www.dvtechtalk.com, gold will usually enter into its “buy” period in early July. So I’m inclined to exercise patience here, but I’m ready to pounce if it looks right. Note that I have no positions in gold at this time.