7 Reasons To Be Bullish

NEWS: Another wild ride on Wall Street, this time it ended with a gain after being down as much as 170 points. When the closing bell rang the Dow had a gain of 164 points or 1.5%. The S&P 500 added 17 points or 1.4%. The NASDAQ gained 29 points or 1.3%. The small and mid-cap stocks struggled for gains as the Russell 2000 only gained 0.3%.

THE BOTTOMLINE: The Dow opened lower by over 1% before rallying for a gain of 100 points by early afternoon. Before you could enjoy the green numbers the index was back in negative territory. But a late day bounce in the financial and energy stocks was enough to propel buyers back into the market. The rally was enough to keep the S&P 500 from closing at the worst level since the fourth quarter of 2005. The three major indices are now sitting on support that must be held to keep from a major breakdown.

REASONS TO BE BULLISH

NEWS: I know you must think I have looked at one too many charts, but there are reasons both fundamental and technical to be bullish on this market. I am not suggesting we rally from today’s prices or that we have seen the bottom; however, based on several indicators we should be at or very close to a bottom. Read below for the bullish argument.

THE BOTTOMLINE:

Reason to be Bullish:

1 - The major indices have been able to hold the 2008 lows even as more bad news continues to hit the wires on a daily basis.

2 -The Fannie/Freddie bailout will help create a floor for the housing market. The Monday after the announcement, the 30-year fixed mortgage rate fell by 7% in one day. With the government stepping in, it should help stimulate more lending in the mortgage market. Potential home buyers that had trouble obtaining a mortgage in the past should now have an easier time. This will resulted in an increase in demand for homes and thus lower inventory and the end result will be higher prices. All things good for the economy.

3 - The CBOE Volatility Index (VIX) traded at the highest level since mid-July, when the indices bottomed.

4 - The price of oil came within striking distance of $100 today, which should help sectors that have been beaten down, such as retailers and homebuilders.

5 - Before the market entered its downtrend that resulted in a bear market, the financials, retailers, and homebuilders are began to show cracks. The homebuilders and retailers are within 5% of 52-week highs and the financials have shown relative strength during the move lower. Could this be an indication of good things to come for the US economy and the stock market?

6 - The Arms Index (TRIN) spiked to a multi-year high this week, marking a historical level. The trading indicator measures the measures the breadth and severity of up/down volume. The abnormally high spike this week showed very high selling pressure that is typically seen at market bottoms.

7 - Finally, my personal indicator, which I call the PFG Phone indicator is flashing “buy”. What this means is that when markets are near tops I receive a large amount of phone calls wanting to know why we are not 100% invested. At the bottom the phone calls are just as high, but this time they want to know why we are not 100% short. Over the last week I have experienced the latter!

On a different, but serious note. I would like to send my prayers out to the families of the victims of the 9/11 attacks. The stock market is very important, but at the end of the day there is a lot more in life. We will never forget.

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