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Friday, October 7, 2011

Will this rally hold? - Justin Bennett

Will This Rally Hold?
by Justin Bennett, Editor

How would you describe the stock market right now?

Maybe the words uncertain, volatile, and stressful come to mind.

European debt worries have investors the world over pulling their hair out.  And it’s painfully obvious, the US stock market is being held hostage by the ominous possibility of a Greek default.

When will all this madness end?

If you can find somebody with a definite answer to that question, you can safely assume they’re full of hot air.

Why?

Because no one knows with absolute certainty when all these worries will finally come to a close.  There are simply too many variables and unknowns, which is precisely why investors are so worried.

In my opinion, there are too many European politicians and bankers with their hands on the steering wheel.  And they’re all trying to steer the problem solving process in different directions.

You can call it the ‘too many cooks in the kitchen’ syndrome.

Everybody has an idea on what to cook, but nothing goes in the oven. And this lack of leadership and decisive action is taking its toll on global markets.

But beneath all this uncertainty, there’s a glimmer of hope…

The markets have risen the past two days on hopes European politicians will finally pull their heads out of their you know what.  A plan to recapitalize and backstop European banks is giving market bears a reason to start covering their short positions.

And that’s fueling a market rally.  In fact, the S&P 500 is up over 5% from its lows on Tuesday.

So does that mean it’s safe to dip your toe into this market?

I think it is…

However, let me be abundantly clear… we’re not out of the woods yet with Europe’s debt problems.  Even it the market finds a way to deal with the issues in Greece, there are other European countries in the same boat.

We’ll be hearing about Europe’s problems for months… if not years.

But here’s the kicker…

If European politicians can get their act together and develop a viable battle plan, we could see some of the worry dissipate from the markets.  And that could lead to a nice fourth quarter rally for stocks.

You see, the 20% plunge in the S&P 500 from the 2011 highs has been quick and unforgiving.  But the gut-churning move has also priced a lot of worrisome news into the market.

In my opinion, a slowing US economy and much (but not all) of the Greek default worries have been discounted.  A controlled default would actually be good news at this point!

And if we get some ‘better than expected’ data about the US economy in coming weeks, a nice year-end rally could restore investors' confidence.

Remember that shopping list of stocks you want to own?  I urged you to put together your list a few weeks ago.  Go ahead and start nibbling at some of those undervalued stocks right now.

But keep an eye on this important technical level…

I’m talking about the low set this past Tuesday morning.  Take a look…

SPX Chart

The green line marks 1075 on the S&P 500, a key level of technical support.  If the market can keep from closing below that level in coming days, it’s safe to stay in the market.

But if the S&P 500 closes below 1075, exit your position and wait for a better entry in coming weeks.

It all comes down to this right now…

Stocks are just too undervalued not to take a chance on them right now.

Whatever you do, don’t load the boat on stocks just yet.  But given how far they’ve fallen recently, even a small position can lead to nice profits in coming months.

1 comment:

  1. Hi,
    Market timing is just a question of your patience and your spare $$$. Ya? Nobody can tell the future except when it happens can you see, understand, guts to buy/sell the stocks you have been doing due "diligence". But it's still a very frightening undertaking.

    ReplyDelete