Is NASDAQ Poised For Rally?

NEWS: An early morning rally could not hold and by mid-day the S&P 500 had officially joined the Dow in bear market territory. Another late-day attempt at a rally also failed and the Dow finished the day down 56 points or 0.5%. At one point the Dow was up 111 points and not too much later it was down 168 points. The S&P 500 flirted with positive territory in the last 30 minutes of trading before closing down 10 points or 0.8%. The NASDAQ traded in a wide range today (62 points), before ending down a mere 2 points.THE BOTTOMLINE: The action on the NASDAQ is somewhat promising. Let’s call it the NASDAQ Trifecta Bullish Argument. 1) The NASDAQ is holding above the March support low of 2155 (closed today at 2243). 2) The RSI is 16 and beginning to move higher, a technical signal that at a minimum a short-term bottom is in place. 3) The wide trading range that ended with the index little changed, just above support is often a “trend changing” indication. Violent swings near a bottom and in the midst of a downtrend that end unchanged indicate the bears are losing control because they could not hold the market down.

The key to my NASDAQ argument is confirmation. Therefore, tomorrow or Wednesday must result in an above average volume day that sends the index above today’s intraday high of 2276. I will keep you posted.

The Daily ETF Update

NEWS: With the S&P 500 hitting bear market territory at one point today before rallying off the lows, investors are searching high and low for ETFs that offer stability along with an attractive dividend yield. We have found two that may just fit what you are looking for.

THE BOTTOMLINE: The inflation concern is one of the reasons why investors have selling stocks in favor of the money market. But what they do not realize is that higher inflation will eat away at the paltry interest you will be receiving in the money market. To attempt to combat the low interest rate and possibly inflation at the same time, investors could consider the treasury inflation-protected securities (TIPS) ETFs.

Barclays has the SPDR Barclays Capital TIPS ETF (IPE), which has a dividend yield of 8.2% and trade approximately 25,000 shares per day. The iShares Lehman TIPS Bond ETF (TIP) offers a dividend yield of 8.1% and trades about 500,000 shares per day. Both ETFs have very similar charts and should move in unison. PFG has a small stake in TIP for a handful of our Portfolio Management Clients.

McCall’s Call - Do Not Panic, Stay In The Game

NEWS: With the S&P 500 touching bear market territory today for the first time in years, it is not uncommon for investors to move into panic mode. The key is to not let your emotions make your investment decisions, but rather use the system that has gotten you where you are (assuming you have been beating the market).

THE BOTTOMLINE: Consider that the average bear market since 1900 has included a pullback of around 32% and the Dow has already closed in on 22%, the average bear market is over 2/3 over. Sure, this bear market may be worse than others in the past or maybe it will be short and sweet. The point I am trying to get across is that investors must realize that the bear market for the major indices is not just beginning. I wish it were just beginning because that means we would be transported back to October and I could sell everything.

The reality is that the bear market began in October 2007 and is now in its 9th month. By the way, the average bear market lasts 16 months. I believe this bear market will be much milder than others because the setup before the sell-off began is not the same as many of the damaging sell-offs in history. Take 2000 for example; valuations were at all-time highs and we were investing in companies that had no earnings. Today the valuations are below the historical average and the trouble sector is the financials, which in time will be back to making billions.

Instead of panicking, I suggest you reevaluate your positions and sell those that no longer meet your long-term strategy. There is nothing wrong with selling stocks that are losers, we have to do it from time to time. It is ludicrous to believe you will never pick a losing stock position. Truly, if you get pick winners 65% of the time you will be a very successful long-term investor. This is an odds game that sometimes goes your way and others it does not. But to come out on top in the end you must stay in the game!

Subscribe by RSS Subscribe by Email