Decision Time Again at Old Highs
This blog will focus on the high retest in the stock markets and also starts a new investor series on value commodity stocks.The stock markets suffered their first big loss of the year last week and it did break the short term trendlines – the 20 SMAs. However, to the bulls’ credit, they fought back hard on Wednesday, Thursday, and Friday to recover from that big loss. The moving average lesson still is a very good one to keep handy for investors as the IWM pullback followed it in textbook fashion. Furthermore, most stocks and commodities follow the same pattern as well. Knowing and applying its principles has personally made and saved me lots of money. And, the DJIA could still follow that moving average pattern.
It was fairly simple to look back on what caused the recovery bounce in the markets. The dip buyers stepped back in, Apple continued to hold steady (AAPL), a final last second Greek bond agreement was signed, some more positive US data was released, and probably a small short squeeze occurred to overcome the selling pressure.
So the stock markets are back to where they started last week for the most part.except for the DJIA which failed to close back above its 20 SMA on Friday. We added a few select positions back on Thursday and Friday in our portfolios in case a topside breakout occurs above the key levels this week (1,375, 13,000, and 3,000). But we left roughly 20% open stock positions in case of a pullback. The 50 SMAs are still very strong magnets if more heavy selling occurs this week.
Fundamentally speaking, the very low interest rate money (“free money”) available to institutions with a systemic risk that has been significantly improved in Europe seems to keep plenty of buying available. With that backdrop in place and without any Iranian crisis, it continues to be a bullish environment for the rest of March until proven otherwise.
The large divergence shown in last week’s DJ Transports and Russell 2000 Indexes charts remains but their move up with a small move down by the Major US Indexes would close that gap.
Momentum Rider is recommending a 10% to 20% reduction in equities on selling from here because the trendline SELL SIGNAL triggered last week is still in place. The key levels need to be taken out and held above for 2 consecutive days to negate it. (1,375, 13,000, and 3,000)
Using the Power Stocks Table:
(1) Risk: Conservative (Cons); Moderate (Mod); Aggressive (Aggr); Speculative (Spec)
(2) Stop: Typically use a 3 to 4% closing stop below the entry price
(3) Trailing Stops: Use the 10 EMA (Swing) or 20 SMA (Short Term Trader) for protecting gains once above it; SMA = Daily Simple Moving Avg; EMA = Daily Exponential Moving Avg.
Commodity and Commodity Related Value Stocks:
(1) Risk: Conservative (Cons); Moderate (Mod); Aggressive (Aggr); Speculative (Spec)
(2) Stop: Typically use a 3 to 4% closing stop below the entry price
(3) Trailing Stops: Use the 10 EMA (Swing) or 20 SMA (Short Term Trader) for protecting gains once above it; SMA = Daily Simple Moving Avg; EMA = Daily Exponential Moving Avg.
Commodity and Commodity Related Value Stocks:
Many commodity stocks in materials, energy, and agriculture and related stocks in railroads and shipping are still at some very attractive valuations. The statistics so far coming out of the US in 2012 are much better across the board. China’s growth is slowing but it is still close to 8%, and the reports out of Europe are only indicating a mild recession.And, because oil and some refined products are going up in price, many of the energy stocks should do better going forward with earnings. So this week starts an investor series on value stocks in these sectors.
Investor Notes:
As promised, MR wrote 3 very important investor blogs on gold and silver over the weekend which everyone should read. There are still several more blogs planned this week on gold and silver that include our latest mining stock recommendations. Click the links below to read the new blogs.
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