Wednesday, February 14, 2007

Stay Strong, Stay Bullish

I'm bullish, I've been bullish, and will continue to be unless something material changes, like more distribution of the market. There is no reason to go bearish, even though there have been a few days recently that would differ with me. The main problem is that they had to throw every piece of bad news , inflation, oil, Iran, interest rates, earnings (MU), the length of the bull run, and anything else they could think of within the same day to get the market to sell off, otherwise, the market doesn't budge to the downside for too long.

The market is simple, it turns when most least expect it too. For the last few months all we've heard is that the rally has lasted too long by historical standards without a 10% or more correction. That's just a silly reason (I thought it was if we were over/under valued). Plus, didn't anyone notice that the NASDAQ corrected 15% from May - July, the DOW was down 8.5%, and the SP500 was down 8.1%. In some circles the 15% correction in the NASDAQ would have been considered a bear market. And the 8%+ corrections in the DOW and SP weren't 10%, but it was close, and it was ugly. To me this all mean that most have stayed on the sidelines and have been waiting for another correction. Doesn't anyone pay attention to CNBC or Bloomberg, every commentator and interviewee talks about (the length of the bull, silly people trying to protect their behinds). People are pessimistic not optimistic.

Having said all that, I wouldn't get too aggressive initiating new longs. Buy only the highest quality. The next move up will be fast and furious, DOW 13K should be a shoe in (2% away), new all time highs on the SP should occur at the same time. This is a time to look for add points on positions you've already held, and to look for sell signals as they rally.

Why look for sell signals if I'm bullish? Like I said, the market turns when you least expect it. If the DOW is going to reach 13K and the SP new all time highs, you will hear nothing but good news exciting investors and temporarily relieving there angst over the length of the bull run. That's when you expect the next correction to happen. Of course, just don't sell because of that, look for the signals on your stocks and the market.

There are two catalyst coming up that could add fuel to the market or end the euphoria fire started today on inflation and interest rates by Bernake's speech. PPI on Friday and CPI next Wednesday. If those two numbers confirm a slow down in inflation, as they should, then we should see some fireworks. We will also be past options expiration week, which should take pressure off the downside to keep stocks below their biggest strike prices, because who buy puts, everyone loves calls.

For now, stay long, but cautious. Don’t take anymore risk then necessary. Let the market get excited then look to take profits. If the market experiences more heavy selling on heavy volume in the next few days, then I would consider cash. But if we get through this week without distribution, then we have some room to breathe as far as how many days of selling we can take before moving to cash.

PS
Anyone else being bored to sleep on most days by the market?
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