Our trading models are in a very favorable position now and no possible sells are imminent. Historically, risk has been well contained under the conditions that we have now, which means it is a good time to be invested.
The S&P 500 SPDR (SPY) has broken through resistance near $147. After being in a basing pattern, it is now in a clear uptrend for the short, intermediate, and longer term.
The continued rise makes investors holding cash feel that they are missing the party as the market continues to make higher highs and higher lows.
Due to the sharp gains at the start the year the market is now in an overbought condition. We therefore suspect that we will not go straight up from here. Normally during the best market advances, there are only small declines that are very insignificant to speak of, a few percent at most.
More bullish observations:
� The energy sector is acting better, finally breaking resistance getting through its September 2012 highs.
� Market breadth is favorable, with the advance decline line making new highs, confirming the advance in prices.
� New lows on the New York Stock exchange are under 25.
� The Dow Jones Transportation Average continues higher, confirming the recent advance in the Dow Jones Industrials. According to the Dow Theory, it is bullish when both of these indexes are in uptrends as this is thought to represent favorable economic fundamentals.
� November to April is a favorable seasonable period for the stock market.
� The Utilities sector, a laggard area in 2012, has stabilized since November and appears to have made an important bottom.
� Traders and institutions are taking on more risk, as shown by the flows of cash into equities and equity mutual funds, while money is flowing out of the bond market (as evidenced by rising long-term interest rates). We are also seeing better overall action in the international markets.
A clear shift has taken place, with small caps taking over leadership. The ratio between the small cap iShares Russell 2000 Index ETF (IWM) and S&P 500 is rising sharply, making higher highs, and higher lows forming an up-trend from the bottom of the range as the advance is accelerating.
This development is bullish for the overall market. Similar formations occurred in July 2010, and July 2011, times when tradable rallies started and good periods where small caps advanced sharply and good money was made.
I recommend buying iShares Russell 2000 Index ETF between $85 and $87 which a likely retracement area if some weakness arises.
Higher objectives have been established by the latest breakout in price, $90.00 being the first upside target, followed by $100.00 a real possibility. A larger channel objective gives further upside objective to $114.
Related articles
- 4 small cap, hidden gems
- A trio of top ETFs for 2013
- Investing success: Time and crumbs
No comments:
Post a Comment