Stocks Due For A Rebound - Go Long

The Dow Jones Industrial Average (^DJI) has closed lower in each of the last five trading session. We believe that that sets us up for rebound very soon.

Technically, we have violated the 21, 30, and 50-day simple moving averages to the downside, so the charts are telling a bearish story. However, the rate of decline, going back to January 6th, has slowed and now instead of a steep downward slope, it looks like we are consolidating at current levels. We are also looking for an Obama bounce and the new administration takes office in six days.

Wall Street has a tendency to “buy the sizzle and sell the fat,” so if there will be an Obama rally, then it should start happening before he takes office.

On Monday and Tuesday, we recommended that readers of this blog go long infrastructure stocks on the basis of President-elect Obama’s infrastructure spending plan.

As we posted yesterday afternoon, some of those stocks were rallying, even though the market had a downside bias.

Assuming we don’t get some economic news to remind Wall Street just how bad things are out there, we should see some extension of those gains.

So we are upholding our long recommendation. We prefer the infrastructure names such as Caterpillar (CAT), Chicago Bridge and Iron (CBI), Foster Wheeler (FWLT), Fluor (FLR) and Jacobs Engineering (JEC) to name a few, but at this point, we are looking for a broad-based market rally and as such, we are also recommending the Direxion Large Cap Bull3X (BGU), which is an ETF that tracks the Russell 1000 index, with the aim of providing three times the daily return on large-cap stocks.

In other words, if the Russell 1000 is up 2% on the Day, BGU climbs 6%. Of course, the inverse is also true. With that in mind, be quick to take profits. Go long here and once we are up a few percentage points on these names, take profits.

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