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Time to be Bullish?

Posted by Eric LeRiche | September 3, 2010 .

Time to be Bullish?

Time to be bullish ?

Time to be bullish ?

Investors May Get Their Chance to Go Long as some think this is a good time to be bullish…

The summer might be ending, but the volatility continued yesterday, as shares prolonged the large gains made on Wednesday. And a late afternoon rally took prices towards the higher with the day almost at the final bell.

Economic reviews appeared to be the cause for the rally. Preliminary jobless claims for that week ended Aug. 28 came in at 472,000 versus an expected 475,000, and continuing statements fell to four.46 million from 4.48 million. Productivity in Q2 fell 1.8%, that is close to the prediction of 1.7%, and unit labor costs elevated 1.1% as expected. But pending home sales resulted in a very surprise — up 5.2% for that month exactly where analysts had anticipated no change. Factory orders for July increased .1% as opposed to an expected .3%.

Time to be Bullish?

Retail shares loved a strong session, climbing 2.2% subsequent a report of strong back-to-school product sales for August. Consumer discretionary shares gained one.8%, and industrials were up one.2%.

Alcoa Inc. (NYSE: AA) led the 30 Dow shares, up 2.85%, adopted by The home Depot, Inc. (NYSE: HD), up two.58%, and also the Boeing Business (NYSE: BA), up 2.1%.

The euro rose somewhat versus the dollar, and Treasuries fell again, bringing the 10-year note to a yield of 2.627%.

The Dow Jones Industrial Average rose 51 factors, closing at 10,320, the S&P 500 rose ten points, closing at one,090, and also the Nasdaq gained 23 factors at 2,200.

The NYSE traded 960 million shares with advancers ahead of decliners by two.5-to-1. On the Nasdaq, advancers had been ahead by 1.7-to-1 on volume of 463 million shares.

Time to be bullish?

Crude oil for October delivery rose $1.11 to $75.02 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) closed at $53.55, up 44 cents.

September gold gained $5.20, closing at $1,251.50 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 2.15 points, closing at 186.41.

What the Markets Are Saying

In just two days shares have miraculously revived and vaulted to regain almost half of the losses of the entire month of August. And the S&P 500 sprang from the support zone at one,040 to 1,055 subsequent daily reversals and buy signals from our in-house indicator, the Collins-Bollinger Reversal (CBR)!!!

Thursday’s Daily Market Outlook gave several levels of the S&P as targets for that reversal: Fibonacci numbers: 50% = one,084, 61.8%=1,095, and then the 200-day moving typical at 1,115.

And, of course, there is the psychological resistance line at one,100, which may turn out to be the first stop for this rally. Not only is one,100 touted by the press as a barrier, but on eight days this yr it has halted short-term rallies, and in every case the failure to penetrate 1,100 led to a reversal and a test of support back towards the 1,040 – 1,055 support zone. This is not solid enough evidence to “bet the farm” on a reversal down from 1,100, but we should closely observe the tape action of the S&P 500 and be alert to the possibility of a reversal if it nears that mark.

Today is Friday, and that means a review with the sentiment indicators. Last week, the AAII bulls were at the lowest percent (20.74%) since July 7 at S&P 1,028. And July 7 marked the beginning of a five-week rally that took the S&P 500 to the top at one,129 on Aug. 9.

This week another with the important sentiment indicators, the Investors Intelligence Advisors Sentiment, showed a drop of bulls for that third consecutive week. They were 29.4% versus 33.3% a week ago, and 41.7% at the start of August. Both the AAII and also the Traders Intelligence reports are reverse indicators — a drop in sentiment for both is bullish for that markets. And the markets appropriately responded.

A very fine technician, Sam Turner, of RiverFront Investment Group, produced a study that appears to indicate that if the current rally follows the course of the two major reversals this yr, the slope with the resulting uptrends is important. He concludes that we should see a multi-week rally and the now familiar resistance at one,130 should again come into play by the end of September.

Well, it’s a long time between now and also the end of September, but we should keep the target in mind. Between now and 1,130 there could be many opportunities to pick up lengthy positions since the two prior bounces from 1,040 had many detours — one of which took us not to 1,040, but to the low of the year at one,011.

We will not be publishing the Daily Market Outlook on Monday, but next week I will continue our discussion of forming a clearly defined trading plan. Have a happy and safe ( bullish) holiday…

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