September 2nd, 2010
After posting the following, I got to thinking. I say below that I will be adding to long positions and reducing cash as the market proves itself and continues successfully moving to ever higher levels. A break above 1128 and I could be fully invested.
But that flies in the face of those who are bearish about this market. They’re strategy would, instead, welcome every upside move as an opportunity to sell stocks at higher prices than they ever hoped they could and that by the time the market touches the upper end of the trading range (however, that may be defined) they intend to be 100% in cash.
It’s the old strategic choice between buying at the bottom of a range/selling at the top and waiting for a break above a range before buying. But this time it’s played out on the larger stage of market timing. I’d be interested knowing what your view is?
What can I say without it sounding too much like I’m bragging. The market performed beautifully yesterday (if your one of those leaning to the bullish side of this boat we’re floundering in) and seems to have followed through today.
Having said that, there isn’t enough evidence yet to jump in with both feet. With the market closed Monday for Labor Day, at 1090 the market is just barely above the converged 50- and 300-dma’s. Another 3.5% move up above 1128 and the market would cross what I’ve indicated to be the neckline of an inverted head and shoulders pattern. Each advance causes me to move even closer to a 100% invested position (click on image to enlarge).
I know I’m going to be criticized yet again for being too optimistic or pallyannaish but I’m looking forward to the possibility …. now perhaps 60/40% …. that the market also will hit and cross above the major, long-term descending trendline that stretches all the way back to October 2007. Granted, yesterday I took you through the risks inherent in upward-sloping trendlines so I’m well aware and prepared that after a crossover, should it happen in the first place, there will probably also be a retreat back to the trendline to test its strength as support and, in the process, generate another downward sloping trendline to replace the current one.
In “Climbing Out of the Boxes With REITs” of July 27, I included 3 residential REIT charts – SNH, AEC and HME. Each has down well since then. There are many other REITs breaking out of well-formed consolidations:
- EDR (Education Realty)
- SUI (Sun Communities)
- EQR (Equity Residential)
- ACC (American Campus Communities)