The bulls are back in business
After a piddling pullback, stocks surge as the uptrend out of the June low reasserts itself.
Well, it's about time. After banging on the table for weeks that this was a buying dip and that the recent six-day pullback was merely temporary, given all the evidence of strength (impressive breadth, stable commodity prices, and lack of panic in the options market), the bulls have reengaged.
The major averages gapped higher Friday morning on an inline Chinese GDP report, decent JPMorgan (JPM) earnings and the lingering aftereffects of a surge of central bank actions earlier in the week. By all indications, prices are headed even higher. Here's how I'm playing the rise.
Really, the positive momentum started midday Thursday as stocks rebounded from deep intraday losses after the sellers burned themselves out. They were simply holding back the tide, given all the factors I discussed in my previous post.
Those factors included extreme positions by smaller traders in the futures market against the euro, for the dollar and for U.S. Treasury bonds. At the same time, big commercial traders (who tend to be proved right in the end) were taking the opposite sides of these trades. We've also been seeing very strong breadth numbers as more stocks participate in up days and fewer in down days.
And let's not forget the attention smaller, riskier stocks -- such as those in the Russell 2000 small-cap index -- have been receiving while larger, safer stocks are underperforming, as shown in the chart above. That's a sign traders are seeking out high-beta positions to get maximum exposure to the uptrend.
Finally, while the economy is far from great -- with big unresolved structural issues like long-term unemployment and the debt/deficit problem -- there are some short-term positives that have yet to be appreciated by the market. I discussed those in my column "A new US recession? Not yet" earlier this week.
So what should investors do?
The more conservative should focus as much as they can on small-cap stocks via an ETF like the iShares Russell 2000 (IWM) or even the leveraged Ultra Russell 2000 (UWM), which I've recommended to my newsletter subscribers as a way to get overall exposure to the upswing.
For those looking for more specific, faster-moving ideas, smaller regional banks are an area I'm focusing on now. I'm adding Columbia Banking System (COLB) to my Edge Letter Sample Portfolio as shares break up and out of a five-month downtrend. If that's too risky for you, consider the KBW Regional Banking SPDR (KRE).
I found COLB with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)
Disclosure: Anthony has recommended UWM to his newsletter subscribers.
Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at email@example.com and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
Obama is a Centrist, not a left-wing liberal. Maybe a little left of Bill Clinton because he wants all legal American citizens to have healthcare that can't be taken away if you lose your job or cause you to file bankruptcy if a major medical emergency happens. If Obama hadn't added more czars to watch the government we wouldn't be catching the ponzi crooks we are finding now. America is going to survive this and be stronger and be a better example to the world on how business should be run. No more religious nuts in the White House !!! Vote Obama !!!!!
How I spend my time is my business not yours. My comments reflect the sentiment of many and if you don't believe it just look at my previous posts and the number of thumbs up I receive. And to answer your comment...I don't trust much of what is happening in this economy and you have to look no further than the banking leaders and those running the other financial institutions. If you don't like my posts then don't comment but rather just give them a "thumbs down".
I think the bulls are only back temporarily to gore their sheep kabob full for another round!
TONY...OMG!!! I wish MSN MONEY would give me my own column. I could wait until the market rallies then quickly send off a story about....How the Market Rallied!!!
I tried to put you into Disney stock in the 20s. Even Jim Cramer blew me off until it hit the mid 40s. Now, it's heading to $60 per share because the one and only reason this global stock market is down is because the right-wing, religious-fanatic GOP needs to be thrown out or into prison for doing absolutely nothing to help this President with the economy. Now Wall Street has figured out it doesn't matter any more who wins because after November this economy is going to take off. Wow, I just wrote my own article. Obama 2012!!!!!!!!!! Stop losing money and buy Walt Disney!!!
Don't worry about some of the hate comments on these comment pages. I want to read all comments, and there are some good ideas that come for them!!!
Most of the hate comments come from Obama loving liberals that believe God is in Washington DC.
Sorry about the last sentence, I couldn't help it.
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