Is this the rally?

I've been calling for an upside breakout in stocks fueled by hopes of central bank intervention and a turn in overly negative sentiment. Is this it?

By Anthony Mirhaydari Aug 7, 2012 3:21PM

For months, equities and other risky assets have been mired in a persistent trading range featuring stomach churning volatility, headline risk, and enough fireworks to chase away many retail investors. Equity fund outflows have been heavy, the highest in two years. Yet the S&P 500 is also up nearly 11% from its June low and is now pushing over the 1,400 level for the first time since late April.

 

This is what I've been waiting for. I've been pounding on the table that people were too negative -- seen in both investor sentiment surveys, the focus on defensive stocks, and in options/futures market positioning -- and that an upside surprise was just around the corner.

 

Now the question is: Will it last? And where should investors arriving late to the party focus their attention?

 

 

Yes, the economy is in poor shape with GDP growth slowing to just 1.5% in the second quarter and the unemployment creeping back up to 8.3% last month. But stocks and risky assets -- especially commodities -- have been moving higher over the last few days on a combination of lowered economic expectations (seen in the turn in the Citigroup Economic Surprise Index) and an increasingly aggressive easing bias by the main global central banks.

 

Both the Federal Reserve and the European Central Bank last week all but promised to unleash new stimulus measures as we move deeper into the second half of the year. And there are signs Germany is growing increasingly tolerant of more aggressive measures to contain unsustainably high Spanish and Italian borrowing costs.

 

 

This has helped fuel the first major breakout in "risk on" assets since January. Treasury bonds are falling hard as money is pulled out of that "safe haven" trade. The dollar is dropping and the euro is rising. Investors are focusing on cyclical, riskier, economically-sensitive stocks in a big way. Commodities are on the move. And inflation expectations -- a proxy for growth expectations and a harbinger of higher gold and silver prices -- are moving up quickly.

 

 

I continue to recommend my newsletter subscribers and readers focus on a few areas showing the most strength: Foreign stocks, precious metals, energy (fading), semiconductors (rising), and financials (rising).

 

Examples in my Edge Letter Sample Portfolio include Amkor Technology (AMKR), VelocityShares 3x Silver (USLV), Spreadstream Communications (SPRD), and First Majestic Silver (AG). These positions are up 7.1%, 8.3%, 9%, and 7.9% respectively since they were added less than two weeks ago.

 

I'm adding two new ideas to my holdings today: Memory maker Micron Technology (MU) and beleaguered lender National Bank of Greece (NBG), which seems to be catching a bid on the euro's newfound strength as well as a call from the International Monetary Fund that the Eurozone lenders should write off more Greek debt as a way to return that country to fiscal health.

 

Disclosure: Anthony has recommended NBG, SPRD, USLV, and AG 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 anthony@edgeletter.c​​om and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

 

 

 

22Comments
Aug 7, 2012 7:26PM
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i would love to know how much MSN Money gets in revenue from selling these "Life is so lonely" ads.
Aug 7, 2012 7:25PM
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Without news from Bernanke and the illusion that QE3 will happen in September there is no catalyst for the market to go higher from here. In fact, we may have gone too far. Expect a pullback soon.

Aug 7, 2012 7:16PM
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No, it isn't. There are a dozen bank corruption matters unfolding and no amount of media cover up can contain the damage. Why we haven't closed the banks already will be the game-stopper this Fall. NOTHING has really been done to stop financial corruption. It will be.
Aug 7, 2012 6:29PM
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It might be a recovery.... Quick load in a shell of commodity speculation and "choot it"!

 

Aug 7, 2012 6:21PM
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Takes more than a few little bumps to make a 'rally'. especially without any material changes politically or economically.. High Freq. Trading doesn't require prolonged bumps.
Aug 7, 2012 6:19PM
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What's pathetic is that it's a balancing act in people's minds between the zero growth/upcoming fiscal cliff scenario.....and then the Helicopter Ben-done-created-a-tidal-wave-of-dollars-that's-a-gonna-eventually-create-its-own-tidal-wave-of-inflation.  Once people actually see things starting to surge........IT'S ONNNNNNNN!!!!   Don't play musical chairs and get left standing up when the music stops, and don't get stuck with a bunch o' greenbacks when the inflation wildfire begins.   *crunch, crunch......popcorn*
Aug 7, 2012 5:52PM
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"The only growth industry left is fraud."

 

                                    Now that was funny!

 

 

Aug 7, 2012 5:41PM
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We are always hearing the term bubble. Look at the DOW history from beginning to end and look at when the market began to rise{inflate}. Is the whole market rise above 4000 just a Bubble? Just a thought.
Aug 7, 2012 5:00PM
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Many still have the quaint notion that daily market actions are driven by traders and investors.
Instead, we're watching computer algorithms execute. Some of these programs are even reacting to keywords in the blogosphere. So yup, the computers are driving the markets and thus driving us.

Aug 7, 2012 4:53PM
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"Is this the rally? Is this it?"

 

Um, yes, no, maybe. What more can anyone say with any confidence? And if they could, why would they tell you, me, or anyone else for free?

 

These articles are fundamentally absurd.

Aug 7, 2012 4:50PM
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Speculators are speculating too much.  The stock market is inflated and has been for a few years.
Aug 7, 2012 4:45PM
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Well it certainly is another 'we're saved' feel good rally,if that's wwhat you mean.
Aug 7, 2012 4:40PM
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I don't really want to, but I have to agree with martin223.  Anthony has been very accurate with his recommendations over the last month or two.  And though I absolutely hate the way this crooked game is played these days, Anthony seems to have a good grasp of the rules. And to his credit, Anthony has published more than one article stating how rigged trading has become, and how the fundamentals of the World Economy are so pathetic.  As they say, "Don't hate the playa, hate the game."  I don't subscribe to Anthonys advising service, nor will I ever, because I am just delusional enough to think that I can pick stocks with real fundamental value.  But I fear that I really am in a market with completely different rules than the ones I've been historically following.
Aug 7, 2012 4:32PM
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God...I cannot stand this guy's chart. Knock it of  Tony the chartman.  
Aug 7, 2012 4:28PM
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The whole market is rigged. The only growth industry left is fraud, the market is being pushed up in advance of the Nov. elections. Anyone who thinks this is a "free market" is living in a dream world. After the elections people better prepare for severe austerity measures as well as a huge pullback in the market.
Aug 7, 2012 4:08PM
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Actually, Anthony has been doing a better job than any of the other pundits that I read.  The twists and turns of this ADHD market are crazy, so Anthony's recommendations bounce around quickly... but he keeps successfully following it.  I'm using his Edge service and I pay for it... I am not paid to write this.  He keeps coming up with winners as swing trades... buy quick, then get out.   I'd lose my shirt trying it but he seems to have the pulse of this crazy market. 

I used to be an Anthony basher, but I've come around to realize that he's pretty damn good.

Aug 7, 2012 3:48PM
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The market is still "a house of cards."  Nothing is "fixed," nothing!  People are still unemployed.  Greece, Spain, Italy, our national debt....nothing is fixed!  The market is all smoke & mirrors. My money is still on the sidelines waiting for the house of cards to come tumbling down.  "Where's The Beef (showing my age here)! 

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