Now that the Market hit a new high 10 days ago what next?
What next? Dow 11,000? or 9,800? Well, after listening to all the newly minted market wizards on Seeking Alpha.com make continuous market crash perdictions, since the mother-of-all-bounces (in our lifetime) began, they final stopped about two weeks ago as the market was agin hitting new highs. Now that they stopped I'm ready to get very defensive. No as, I've said before, I see no 20% correction for certain in the next few weeks. Getting defensive, for me, means selling the stocks and sectors that have risen the most and rotating into stocks with perdictable earnings and good dividends that have not enjoyed a big market advance. And if there were a 5% correction you can bet I'd be looking to buy unless we had new negative economic data, in addition to our serious unemployment problem. Remember unemployment is a a very serious problem but if companies are expected to earn more resulting from these lay-offs and if the future economy is expected to get better then stocks can continue to slowly rise or go sideways as they did in 1983-84 and 1991-92 even as unemployment was high. But lets just consider whats more likely for the next few weeks.
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So, to help me confirm or reject my guess I'm calling in advice from the Voodoo Chartist as us EMT boys like to joke about. I'm not one to get excited about minute by minute market technical's and charts. But I do make major portfolio shifts in allocation between sectors, industries and cash based upon my technical advisors in addition to fundamental analyst recommendations.
When one chooses a technical advisor I recommend one be chosen based upon their knowledge of fundamentals, market history and knowledge of how portfolio managers think too. I'm going to share with you Ron Walker ( one of my advisors ), a man who's ego is in check and is worth your listening time. Now given the market has had its greatest move up since the 1930's I'm worried the markets now ready for another minor 3 maybe 5% pull-back similar to the last two.
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Another technical advisor I follow Carter Worth, of Oppenheimer Fund Management has also advised me a correction is now the most likely near term outlook. And we've said all along that the market seemed insistent on going back up to the pre-Lehman bankruptcy level of last September. We've hit those levels. Based upon his training and experience Carter says, "that's the wall we'll not climb above for some time now." He believes a correction is due. Does it mean we must have a sharp correction? No. It can be a slow back and forth but continuous drip down into December. Even if we have no correction now, I'd bet it would come in January when large investors choose to take capital gains for all of 2009 profits, on their 2010 tax return, simply by waiting to sell on January 1st 2010. Most likely the big winners in commodities related stocks will sold. But let's not start speculating beyond the next few weeks.
Last week I saw the fertilizers companies and telecom companies rise while oil drillers like my favorite RIG were extra weak. I've sold my fertilizer play IPI and oil tanker shipper FRO. I'll look to buy it back below $25, I hope. I'm holding my DRYS due to the rising BDI rate rising. I'd be looking to buy more RIG below $82. Metals like X and AA can be bought on any noticeable drop. Large banks and insurance companies like BAC, WFC, C, STI, GE, PRU, MET and HIG seem on very firm ground and in little risk of falling down more than 6-10% compared to other jumbo winners in 2009. I'd be looking to buy BAC, GE or HIG on any noticeable pull back. I also notice that some of my favorite defensive plays with excellent yields continued rising as other socks weakened last week. Finally boring defensive stocks like WMT, MO, LLY, PE, VZ and CHL (I hold positions it all four stocks) moved up. These stocks may finally be in a mini-break-out mode which makes them a safe play to hold (even in a correction) as one takes other short positions ( as Ron describes ) or moves to 50%+ cash levels ( which I am ).
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These videos are more for individuals with some good basic understanding of technical analysis. It's for those who want an in-depth market analysis and opinion on if the market is more likely to move down or up in the next two weeks.
Special Note: The average individual needs to spend more time developing a long-term savings and investing plan instead of a market trading plan. Market timing and market trading and daytrading is a very time consuming activity. Those selling monthly subscription services will always tell you "passive index" or "monthly dollar cost averging plans" or "buy and hold" is dead. Yet, many traders make less money than a simple buy and hold passive investing strategy. The down side of daytrading is rarely discussed. What does it cost you to be spending 8 hours a day five days a week on market trading?
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