Sunday, January 08, 2012

Top Reasons This Rally is For Real


I've been Cautiously Bullish for the better part of the last quarter.  I remain Bullish and even More so.  The Reasons for being Bullish continue to Grow while the Reasons to be Bearish Diminish by the day.  So what better way to start the New Year but to have Many Reasons to be Bullish.

Before I start, the Leading Stock Analysis Section has been Updated.  It contains what I believe are the Best Stocks to Watch.  I can't guarantee but I'm sure from past experiences, that if the Rally holds and continues, the List contains Many Stocks that should have Big Moves.  Read the Reasons, Study the Stocks, and hopefully it'll be a Happy New Year.  So what are my Bullish Reasons?


Most Importantly is Current Leading Stocks are no slouches.  They have Strong Fundamentals, Rising Estimates, Strong Fund Ownership, Rising Margins, and Strengthening Technicals.  Can't ask for anything more.  Sure, some of the old guard like BIDU and PCLN appear to be topping, but their consolidation are not long enough yet to be proper.  There is also not enough of them broken yet.  Before Bear Markets the Stock Market is Littered with Dead Former Leaders and the only Reasonable Setup is in Secondary Stocks with Inconsistent Fundamentals.  That's not Currently the Case.

Large Cap Stocks have not Led the Stock Market yet.  Small Caps Led in 2009 and handed off the Baton to Mid Cap Stocks toward the end of 2010.  The Mid Cap Stocks should hand off the Baton to the Large Cap Stocks sometime in 2012.  Makes sense too.  Those Small and Mid Capitalization stocks that have led the Rally from the beginning have now grown up into Large Capitalization Stocks.  Once the Large Capitalization Funds have to own them, their sheer Buying Power puts many of these Stock on Auto-Pilot Buy Programs until the Money runs out.  That could take sometime.  The only thing that changes this is if they change their policies on being 100% invested NO MATTER WHAT.  Silly.

Short Setups at the end of September fell Apart faster then an Raw Egg hitting the floor.  The Bear Market Rally before a Severe Leg Down sees Short Setups Tightening, not Breaking Out on High Volume to the Upside.  That's usually an indication of Bullish Demand by Institutions.  We saw this in March 2009 and August 2010.  Each occurrence marked the Beginning of the First and Second Legs of the Current Bull Market, respectively.  I believe we have just marked the Beginning of the Third Leg of the Bull Market.

The Big Move Up off the Bottom and the subsequent Correction we just had is consistent with Historical Precedent for Beginnings of Bull Markets.

The NYSE A/D line kept making 52 Week Highs while the Stock Market had marked its 52 Week Highs weeks earlier.  The A/D line typically tops well before the Stock Market does not the other way around.  The Third Leg of a Bull Market typically sees the A/D Line Fail to make New Highs.  In many cases it continues to Trend Down (1999 - 2000).

The VIX failed to make New Highs as the Stock Market made New Lows in September and then preceded to move sideways to down as the market corrected into the end of the year.  Historically when the VIX trends lower while the market is correcting, it Leads to a Bull Market NOT a Bear Market.  It indicates subsiding Fear in the Markets, but not Complete Trust.  The Proverbial Wall of Worry.

Bad news out of Europe or Asia is Brushed off within a few hours.  In a Bear Market the Stock Market would have been Knocked into another Down Leg.

The Stock Market has diverged with the falling EURUSD.  The market has followed this Currency almost Tick for Tick for quite sometime.  The continued selling in the Currency Pair is the main reason the Stock Market still feels anchored.  Any relief in the selling will lead to a strong reaction by the Equity Markets.  No one really wants to see Europe fall apart AGAINNN...Yet.

The Europeans have or are pretty close to Punting this Crisis down the Road.  It will be back to bite us again later, but for now everyone just needs a break from it.  Get the Equity Markets and Economy moving, even if temporary, and everyone's focus will be off them.

Finally, because I or my Research said so is NOT a Good Reason.  Your Research has to prove to you that your decisions are correct.  The nice thing about the market is one of us is usually right or wrong. :o) That's not the nice thing, that's what makes it work.  The nice thing is if you are wrong, the market gives you plenty of clues, Losing Trades, Diminishing or Loosening Setups, before you lose your shirt with time to jump on.  Always heed the Warning Signs.  The Old Man in Scooby Doo is Always Right, not Crazy.

I do agree that the stock market needs to prove itself further, unfortunately waiting until the time it starts to become obvious, it's time to stop being a long term investor and become a swing trader.  My point is, if you ever wanted a moment to potentially jump on and ride a Big Winner, the time is now.

If you haven't committed yet, no worries.  I've stated many times in my Tweets that Bull Markets do not just runaway.  They offer many points along the way to get in.  Just don't hesitate because the Train does eventually Leave the Station.  Use Tight Initial Stops andTrade the Right Stocks and the Stock Market will keep you in or out.  Just Prepare for Shakeouts along the way.  I know, a bit confusing, but we have to stay Flexible.  Bottom line, better to be in now then out.  Follow your Roadmap and don't be afraid of Detours.

Hopefully you have found the Blog and the Leading Stock Analysis Section helpful.  As always, I'm open to Question.  Follow me on Twitter for more Regular Thoughts.
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