Wednesday, June 14, 2006

Rally Relief for Everyone

Are you ready for a rally? Probably not. The way the market isacting it doesn't seem the selling will ever end. But that doesn'tmean you should not be preparing. At this point the market is readyfor a bounce and way oversold to be initiating short positions. I'mchanging my opinion from outright bearish to neutral/bearish. Mylong view over the next few months is that we will follow the restof the world's markets into bear market territory, but in the nextfew weeks we're ripe for a sneak rally.

So why the change of opinion in the short run:

1. We're entering a period of relatively light news until the Fedmeeting on the 29th.
2. The Bull/Bear ratio is indicating that bears are about toovertake bulls.
3. The put to call ration has spiked over 1 on at least 4 occasionsrecently, indicating more puts then calls are being bought.
4. Between CNBC and Bloomberg you would think the world was comingto an end.

The rally will be a true stock pickers market (aren't they all?).There will be some opportunities both big and small. The main thingto remember is that you should not over stay your welcome. Stopsshould be tight and any sign of trouble in a stock you do have aprofit in should be taken.

Spend the next few days looking for fundamentally and technicallysound stocks. The earliest we could get a confirmation would beMonday assuming we don't undercut today's low. If you're stockbreaks out, make sure that it's on heavy volume and the relativestrength line makes a new high.

During the rally, if it materializes, make sure you don't forget tokeep an eye for potential short setups so you're ready to pounce theother way once the market starts to run into trouble. The next legor two will bring back memories of the 2000 - 2002 beat down. Idon't expect the bear to last that long or be as deep, but the lastleg or two just get ugly and if you're not short or in cash it willget painful.

On another note, the way large cap techs and telecoms have beenholding up indicates that they are finally ready to take back theirroles as leaders in the next bull market. Due to their heavyweighting in the indexes, I can say with some confidence that thenext bull market (not this mini rally) will take the NASDAQ over3,000 and DOW over 13,000 (by the end of 2007 at the latest).

Ready or not, the market will do what it has to do with or withoutyou. So do your homework regardless of market conditions so youdon't miss a beat when the market comes calling.
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