Sunday, November 18, 2012

Stock Market Downtrend Is Over

Several stock market indicators turned positive during the week of November 12-16.  First, the President and Congress showed a willingness to cooperate in solving the nation's budget crisis.  Secondly, this is the fall rally season.  Downturns seldom last for long in the fall as opposed to the extensive May selloffs and summer blues.

Another important indicator was the NYSE McClellan Oscillator.  It briefly went below -80 during the week and then immediately turned upward.  This scenario nearly always turns into a significant rally.  It is time to sell short stocks like TZA and buy long stocks like UDOW.  

Another point to make concerning an imminent uptrend is the action of UDOW.  Even though the stock price is at a low point, the RSI and MACD have both turned upward.  This divergence is an early signal of a trend change.  This new rally will probably last several weeks unless some bad world news shortens the trend.

Sunday, November 11, 2012

Stocks Will Rebound

The stock market fell hard after the election.  Several reasons have been given for the downturn, but it probably will not last.  For example, the looming budget crisis was one reason that pundits gave for falling stock prices.  We had this same situation in August of 2011, and Congress eventually compromised.  I believe Congress and the President will agree on a solution once again, and stocks will move higher.

We just completed an uptrend cycle that ran from July to October.  Stocks have already pulled back almost to the 50% Fibonacci retracement for this trend.  As long as the Federal Reserve is willing to prop up the economy, I believe buyers will soon look for bargains at the current level or slightly lower.

Another reason for a stock rebound is that the economy is still slowly recovering.  Unemployment is staying about the same, manufacturing is not plunging, and home-building is looking up.  So, it makes sense to keep some money in stocks for the usual fall and winter rally.  You could also diversify into bond funds and get paid for waiting.