Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
CHIA Coins After 1st Week of Plotting 140 Plot 14tb Farm. Crunching the Numbers How to Win - 15th May 21
Tips to Create the Best Cross-Functional Teams - 15th May 21
Gold: Lose a Battle to Win the War - 14th May 21
Are You Invested in America’s “Two-Hour Boom” Fast Shipping Stocks? - 14th May 21
Gold to Benefit from Mounting US Debt Pile - 14th May 21
6 Solid Signs You Should Have Your Smart Device Repaired Right Away - 14th May 21
Ways to Finance Your Business Growth - 14th May 21
Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
How Much CHIA Coins Profit from 100 Plot 10tb Farm? Hard Drive Space Mining - 13th May 21
Stock Market Bulls Getting Caught in the Whirlwind - 13th May 21
Legoland Windsor Mini land and Sky Train Virtual Tour in VR 360 - UK London Holidays 2021 - 13th May 21
Peak Growth and Inflation - 13th May 21
Where’s The Fed? Watch Precious Metals For Signs Of Inflation Panic - 13th May 21
Coronavius Covid-19 in Italy in August 2019! - 13th May 21
India Covid Apocalypse Heralds Catastrophe for Pakistan and Bangladesh - 13th May 21
TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
Gold Price During Hyperinflation - 12th May 21
Stock Market Extending Phase Two? - 12th May 21
Crypto 101 for new traders – ETH or BTC? - 12th May 21
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Upward Trend, No Pullback

Stock-Markets / Stock Markets 2010 Mar 14, 2010 - 03:40 PM GMT

By: Peter_Navarro

Stock-Markets

Best Financial Markets Analysis ArticleThis week I would like to pick at least a small fight with one of my favorite columnists, Michael Santoli of Barron's magazine. In his March 15, 2010 column, Santoli used his so-called Mystery Broker to predict a market pullback in the range of about 10%.


This use of an unnamed second party all seems kind of cheesy to me. The stock market isn't Watergate and Michael Santoli doesn't need Deep Throat to reveal secrets about its direction. To Mike, I say if you want to predict what would be a rather significant market correction at this point, then have the chutzpah to do it yourself -- don't rely on some unnamed ghost whose performance your readers cannot evaluate themselves because he chooses to go nameless.

As for the prediction of a 10% pullback (actually Mike indicated about 9%), I'm on the other side of that call for now. The only two technical analysis signs that any type of pullback or profit-taking might be in the offing include a fairly significant overbought condition for the market (cited by Santoli) and relatively low volume as the market has ground its way up over the past several weeks.

The problem with relying on an overbought condition signal, however, is you almost always see such signals when the market achieves new highs and is trying to establish a new leg up on a recovery. So all that really leaves us with from a technical perspective for the bearish case is low volume. That's a concern -- but hardly a trend breaker on its own.

Now, on the other side of the technical analysis ledger for this market, what Michael Santoli failed to mention are these facts: As Market Edge notes, both the momentum and strength indices for the broad market are positive while sentiment is neutral. Regarding broader market strength, of the 91 industry groups tracked by Market Edge, fully 83 of them are rated either strong or improving.

My bottom line on my Michael Santoli beef is that in presenting the case for a pullback, he only told you half of the technical story and used an unnamed cipher to do it. It's a weak case when you look at the bigger technical picture, which is perhaps why he may have wanted to hide behind his ghost – if the pullback doesn’t happen, it’s no ding on his reputation.

Of course, loyal readers know that while I always use technical analysis as a tool to evaluate the market trend, I also only see technical analysis as a reflection of underlying fundamental conditions. These fundamental conditions currently make at least a decent case for being cautiously bullish.

The fundamental case begins with the observation that the stock market is a leading indicator of the economy. The economy of the US appears to be gathering strength right now; and this strength is being driven both by the inventory cycle fueling business investment in the GDP equation and a sustained and massive government stimulus (both monetary and fiscal policy). In addition, despite high unemployment and low consumer confidence, consumer spending remains above expectations. The only big cloud in America's GDP equation picture right now is the net export driver, which is likely to fall off because of the recent strengthening of the dollar.

For now, then, I see the broad technical strength of the stock market reflecting optimism about the improving US economy. That means, at least for now, that the upward trend remains intact and there is little sign of the kind of major pullback that Michael Santoli's Mystery Broker (and Santoli himself by implication) are predicting.

As for my trading strategy at this current juncture, I'm using a five-pronged approach. I am trend trading the Russell 2000 with a long position in IWM -- I prefer the Russell 2002 to the S&P 500 because there is more volatility and potential upside reward. Second, I'm using a sector rotation strategy, with long positions in transportation (IYT), materials (XLB), and oil (DBO). Third, I am using a geographical diversification strategy, with long positions in Mexico (EWW) on an improving US economy and Australia (EWA) as a hat trick play on commodities, China, and exchange rates.

My fourth strategy is my big macro trade of the year. I have a relatively large position in CYB, which is a bet that the Chinese yuan will appreciate over the next 12 to 24 months. The beauty of this trade is that there is virtually no downside risk because there is no imaginable scenario in which the yuan would actually depreciate.

Finally, my non-cyclical hedging strategy involves a perennial commitment of 20% of my portfolio to small-cap biotech stocks, typically under 5 to 10 bucks. I like biotech because stock prices are driven far more by the drug discovery process than by the business cycle -- ergo, the hedge. I like small-cap biotechs under 5 to 10 bucks because I can essentially trade them like options and clearly define my losses -- which is critical for very high risk biotechs. My current holdings include: CHTP, DUSA, HALO, LPTN, PBTH, SNT, SNMX, SCMP, and SVNT.

So that is my take for the week. Trade well and remember, to gamble is a sin but to speculate is divine.

Navarro on TheStreet.com
Click here to review my videos on TheStreet.com.
———-

Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at www.PeterNavarro.com.

© 2010 Copyright Peter Navarro - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in