I apologize to those consistently checking for new posts, and I thank you for your dedication. As the school year came to an end, I didn’t feel comfortable posting without giving my undivided attention to the current events in the market. The markets are dynamic and require constant interpretation.
Having said this, I’d like to reiterate my positions and price targets. I am still bullish on the financial sector, as well as the overall market. I can see both the DJIA and the SPX testing 10,000 and 1000 respectively before any significant resistance and/or retracement. During last week’s move higher, the trading volume spiked above the 10 day average, about 5B. This week is setting up for a huge move, many will suggest lower, but I believe we could see the mother of all short squeezes. As of the end of March, there was approximately $3.9 trillion in money-market fund assets and about $3.4 trillion in equity mutual fund assets. This unusual proportion implies that the current rally could pick up steam, and fast. From August 2008 to March 2009, there has only been one month where equity assets have increased, December. Although February to March did increase, April’s numbers will be more telling. Money-Market assets have consistently increased from September 2008 to January 2009, remaining essentially constant from January to March. May of 2008 boasted excess of $6 trillion in equity assets suggesting the current position could almost double. The price impact of this large of a monetary influx would be tremendous. Yesterday’s decline was short lived, and it should be noted that tech did not decline as much as the rest of the market.
After the market closes I will continue the post.
The SPX has broken out above the 877 Fibonacci retracement level. This is extremely bullish, and from a technical standpoint suggests the SPX is headed to 934. Closing above 877 is important and will confirm the suspected rally. I expect to see the DJIA test 9000 and the SPX to test 950 over the next couple of weeks. If the markets create support at the current levels, enough consolidation will have occurred to support a substantial rally in the near future. The talking heads on CNBC are finally catching on and have suggested the possibility of DOW 10k by the end of the summer. Please review my archived newsletter http://marketfallacy.com/newsletter/files/Market_Fallacy_%7C_4-7-09_%7C_Cautiously_Optimistic_2009-04-07.html, to see that I have been suggesting this possibility since April 7th, when the DJIA closed at 7790.
Here is one of the articles on CNBC’s website suggesting DOW 10k. http://www.cnbc.com/id/30478135 However, my reference is to the anchors on CNBC’s television show.
Research in Motion (RIMM)
The markets are closing in on the gap between last Friday’s close and the 7th week of consecutive up weeks. Actually, some of the indices have already filled this gap. The Nasdaq Composite, representing smaller and technology based companies, which is positive year-to-date, has already filled the gap. In the charts above, the Nasdaq Composite, Apple, Google and Research in Motion are all currently establishing a new floor or support levels. Similar action is occurring in the Russell 2000. Both the Nasdaq and the Russell 2000 indices have consistently led the rally. Put another way, the Nasdaq and Russell 2000 have foreshadowed both the rallies and the declines for the last couple of months. It is for this purpose, that I reference them and point out the consolidation activity.
I also want to address Citigroup’s behavior. Citigroup is the only large bank that is not taking part in the current rally. Large banks here refer to Citigroup, Goldman Sachs, Bank of America, JP Morgan Chase, Wells Fargo and Morgan Stanley. The days following Citigroup’s earnings announcement, have seen the stock drop by approximately 20%. Citigroup has declined the last couple of days on lower than normal volume. However, yesterday’s candle on Citigroup was a hammer, a bullish sign. If Citigroup closes above $3.30, today’s candle will be a bullish engulfing candle. This would confirm yesterday’s bullish suggestion.
The importance of volume cannot be stressed enough. The higher the volume, the more valid the market movement. If the SPX closes above 870, extending the consecutive week streak, and does so on high volume, this will confirm my expectation the markets are setting up for the next move higher. The 10-day average volume for the SPX is about 6.1B shares. Currently the SPX has traded about 3.5B shares halfway through the trading day.
Posted in Stock Market
Tagged aapl, apple, bullish candlesticks, c, citigroup, goog, google, nasdaq, research in motion, rimm, russell 2000, spx, volume
Early market volatility suggests uncertainty surrounding the Stress Test results. Look for the possible release of this information tomorrow to be a major upside catalysts. For the most part, the results should be within expectations, but any negative surprises will cause an equity specific sell off. By the same token, any positive surprise will provide more momentum for the current rally, as it is being led by the finanials. I expect to see a continuation of the intraday volatility, but do not expect a significant breakout either way. If there is a breakout it will be foreshadowed by the Nasdaq and the Russell 2000. If the markets bounce back to near even, and the Nasdaq and the Russell 2000 lead the rally positive, the rally will have substance. If this happens look for a substantial move higher, particularly if it happens during the late day.
Existing home sales fell more than expected last month, but this should come as no surprise. I find this to be a huge positive in regards to forming a bottom, even though the markets disagree. If the existing home sales increased a second month in a row, I’d be concerned with the results. For this to be the “worst real estate decline since the Great Depression,” bouncing back on consecutive months should warrant concern. This reconfirms that the real estate markets have bottomed. Although, next month’s existing home sales need to be better than March, they do not necessarily need to be positive like February. It should also be noted that while real estate prices have declined nationally, a majority of residential real estate is not losing significant value. The areas losing the most are the areas that had the highest growth potential. In regards to academia, higher growth potential comes with higher risk, or higher risk is compensated with higher growth opportunity. The areas hit the hardest are areas where there was extreme speculation, and real estate was being purchased, with debt, and with the intent to make a quick profit.
Since the beginning of this post, the markets have bounced a little. I expect a progressive increase throughout the remainder of the trading session, with a late day rally of about 1%. The markets are subconsciously thinking about the consecutive weekly gain streak on the line. The streak, currently at six weeks, has been the largest percentage gain streak since the Great Depression. SPX 832 is the current support level to consider. Closing below this support level implies further declines.