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Market Strength Grows – Committing Money

KISS: \"Rock and Roll All Nite\"

sp-with-fib2

Above is our favorite chart. You can see that we’ve finally broken out of the trading range between the 200-day moving average and 950 on the S&P 500 Index. And, we did it with gusto. You can see that volume has been in an increasing uptrend (I’ve drawn in the purple line) during this move into new territory.

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When looking to see if a rally has legs to run further, we need to look at some of the breadth indicators. Above is the Advance/Decline Line, which is showing internal strength in the market. The market is moving up at the same time that the number of individual stocks is moving higher. In other words, this isn’t a rally where a few leading stocks are moving higher while the broader market is languishing.

above-200-day

And finally, the chart above shows you that the number of stocks that are trading above their 200-day moving averages continues to grow. This is a strong indicator that many companies have permanently bottomed and are capitalizing on the potential for a recovery.

In a future post, I’ll address whether I believe we are in for a permanent recovery or setting ourselves up for a double-dip recession and that this rally is just a bull trap – a highly possible event given the potential for a commercial real estate crash much like the residential real estate crash. But that, like rampaging inflation, is somewhere in the future. Right now, its time to capitalize upon the strength in this rally and the move up to our next target of 1050 on the S&P 500 Index (see the line on the top chart).

Fortunately for our clients, we went all in (sorry, watching too much Texas Hold ‘Em on TV) in early March. If you’ve been a reader of this blog since then, you know all the reasons, both fundamental and technical. Plus, like our clients, you’ve made A LOT of money since the market low as well as year-to-date.

Next week, I’d look for a bit of a pull back, maybe to the 950 support level (remember, previous resistance is current support). We have been adding to our favorite recovery sectors (financials, tech, biotech, and some early cycle industrials) on pull backs while paring energy-sector investments back to market levels. We’ve also pared back gold in some accounts that were over-weight. Those proceeds will be used to broaden our clients’ exposure to our favorite recovery sectors.

I am hitting the road to Chicago in a few minutes. It’s fraternity brother weekend for me – an annual event where 10 or so of my college group meets up for a weekend of Cubs games, Wrigleyville, and catching up. Always fun to see and connect with the people you care about.

Have a great weekend, party like KISS (if you are not sure how to do that, just click on the video link above), and enjoy the rally (and the money you are making)!

Mark