CR GREATEST HITS©
This week was the anniversary of the bottoming out of the stock market. It was March 9, 2009 when the market hit bottom. Since then, the market has been on a trajectory almost straight up. Not all sectors though, are doing well. Lately, it has been the banks and high-tech sectors that have been driving the markets. Banks are the highest they’ve been in 16 months and they are still showing signs of strength. Especially the larger banks like Bank of America, Citigroup, and JP Morgan Chase. These banks also received much of the bailout money from the government. We predict these large bank stocks will continue to do well over the next month to six weeks. In the tech sector, not all technology is doing well.
We see the sectors to trade in are semiconductors, Internet stocks, and biotech. The pace of drug development is increasing plus it is time for large companies, who have waited as long as they can, to upgrade their IT investments. We predict that drug companies and Internet infrastructure companies will continue to do well over the summer. We would like to comment on the indexes. (NEWS proof) Watch for the Dow to break 10,620. If it can do this, we predict another fast leg up for the Dow. If the Dow fails to break this number, then we see the Dow dropping to around 9,850 where it will find support. The NASDAQ over the next 3 – 6 weeks should perform well, but watch for the RSI on the Index to reach 80 or slightly higher and then sell your tech holdings. Rather than trying to pick individual stocks, play the NASDAQ composite index using the RSI as a gauge. The S&P 500 needs to break 1,150. If it can’t, then watch for it to drop to 1,015 and reach temporary support there. The next drop through 1015 should stop around 910. By this time, the RSI should be around 33 or lower and it would be a good time to go long at that point. We’ve noticed the market does not trade with the economy. Usually as the economy gets better, the market performs better. However, despite some claims you hear, no economic recovery can happen when unemployment keeps rising. Not only new jobless claims, but people who fell off the ranks of benefits, those who gave up looking for work, and new entrants into the market who cannot find a job. These people are all unemployed. On top of that, the average work week is no longer 40 hours. It is closer to 34 and dropping soon to under 30. People who still have jobs will find themselves working less and making 25% less money. The market will ultimately respond to consumer spending. And consumer spending will spike once people are working again. What seems to be driving the market without consumer spending is all the funny money pumped into the system and programmed trading. The rallies are occurring on declining volumes. You will see the volumes continue to drop causing a small correction followed by the next rally. After a few more small corrections and rallies, you will see the last leg up followed by a violent and quick reversal possibly in the September – October time frame. We predict that it will be a steep drop over about 3 months. Then, the next rally up will start.
QUESTION: Explain the overall essence of your message today?
ANSWER: People must learn not to base their future on what they hear on the news. If you watched the news all day, you would think that unemployment is slowing down, housing prices have bottomed, and people are buying homes again. By all the hype, you would think the stock market is on a never-ending rally and companies can report meager earnings and have their stocks take off. The average person has lost their job and possibly their home, can’t get a loan for anything, and will soon be having trouble finding enough money to pay the rent.
QUESTION: Why do people need to know this information right now?
ANSWER: Most are in that state where they believe things will go back to the way they were in the past. Sixty years of prosperity have trained them to expect more of it year after year. This is just a blip in the process. Many have never lived through tough times and can’t imagine how it could get much worse. It will soon dawn on them that they should have had a “Plan B” all along.
QUESTION: In light of the economy not getting any better for most people and since the market is driven mostly on consumer spending, why hasn’t it dropped severely already?
ANSWER: The market is certainly not rallying on strong stock fundamentals or P/E ratios or people throwing their extra cash into the market. The market is driven by the stimulus that the government has provided to banks, financial institutions, and corporations, as well as program trading. Many individual investors pulled out a long time ago and may not return. The market without consumer spending, which only happens when people are employed and the economy booming, will just run out of gas and coast back down the hill.
QUESTION: So, on the next quick, violent correction down, which may come around Q4 of this year, who will be affected the most?
ANSWER: The retail investor who waited too long to get in and thinks they will miss the ride, will just be putting more money into the market when the rug gets pulled out from under them.
QUESTION: How does an individual apply this information to their life at this time?
ANSWER: Anybody who trades the market needs to not look at fundamentals, but the Relative Strength Index (RSI)of any stock or equity they trade. Do not get caught in the middle ground of an investment when the RSI is between 30 and 70. Watch for the extremes on the RSI (below 20 and above 80) to get into a trade or go short on a trade.