Seven Reasons To Be Bullish Now
Market sentiment is the key to this momentum-driven move.
1. Foremost are the "better-than-expected" second-quarter earnings being reported by many market leaders, which are the focus of my income-oriented retirement portfolio.
2. The guarded yet "cautiously optimistic" guidance being afforded on the numerous conference calls I've heard during this reporting season.
Fundamentally, cost-cutting and layoffs aren't as impressive or sustainable as organic growth. However, the depletion of existing inventories will at some point require the capital investment and employment necessary to replenish inventories.
3. Additionally, the bullish channel I first noted in May at S&P 500 875, and the fact it has held on a closing basis and run on to new highs without any significant pullback, has illustrated the solid momentum that has sustained the market.
In July, I noted the support provided by the 50 MVA and the impending move above the 20 MVA on the S&P 500. The move above S&P 500 925 provided the groundwork for the successful assault on 950.
As I showed, the 950 level on the S&P 500 had become established resistance. As we know, what was once resistance now becomes support.
4. Yesterday's broad-based 22-point breakout in the S&P 500 has moved the market to a new level, as the Dow Jones Industrial Average closed above the 9,000 level for the first time since January, with a 38% gain in 5 months. The NASDAQ completed a 12-day upside run, the first since January 1992.
5. We decisively cleared the S&P 950 resistance level, and have now created several levels of support from which to trade around our core positions. As I have discussed, I buy, sell, and follow the market in stages to determine entry and exit points, as well as sector rotations to determine the strongest areas of the market to overweight.
At this point, you can see I'm viewing the next level of overhead resistance right around the S&P 1000 level. In the event of a sustained pullback, I will use the former resistance at S&P 950 as the first level for sales around my core positions.
The next level of staged sales will come at a breach of the 50 MVA around 920 and then another level of sales at the S&P 900 level. An ultimate breach of S&P 875, and an ultimate test of the S&P 840 then 820 areas, would be the levels I would reevaluate to again add to trading positions around my core holdings.
6. Another bullish technical indicator is the rising percentage of stocks on the S&P 500 above their 200 day moving average. I am watching this indicator closely for signs of deterioration and as a concurrent sentiment indicator.
7. In addition to the technical picture, there are several fundamental indicators I will be watching. While I expect a contained pullback next week, perhaps to the 920 S&P level, second quarter GDP, inventory buildups (particularly anticipated in motor vehicle production), clear continued gridlock in Washington over Cap and Trade and health care, crude oil holding above $60 which supports the S&P 500, China's continued commodity hoard, and a steepening yield curve included.
Any or all of these indicators could play a major role in market sentiment which has been the key to this momentum-driven move. The real issue will be whether the under-invested institutional and hedge fund managers are forced to chase the market for fear of missing another bullish move.
The impending impact of the government stimulus, continually accommodating Fed policy and sidelined funds looking for return are fueling their concerns.
As Professor Sadana indicated, as with life, the "key" can change over time. I don't doubt these keys will change as the market moves forward. But for the moment, these are the keys for my bullish stance.
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