Looking forward after today’s Monster Rally

Nice day put in by the equity markets today. Window dressing should lead to continued upside tomorrow. After the carnage we’ve all experienced over the last 8 weeks, this will be an excellent way to enter the long weekend. I’m looking forward to the break from the markets.

How we’ll do in July is anyone’s guess, but here are my preliminary thoughts:

• Fortunately, it looks like we’ve broken the downtrend started on May 8th. The volume that accompanied today’s 3% move on the Nasdaq was the most we’ve seen since the last strong upside move by the Nasdaq, back on June 21 (when we were up 34 points). Thus, institutional bias appears to be bullish…FINALLY, after a long stretch when every rally would see another round of selling. This chart (from BigCharts.com), shows how the trend was actually violated on June 21st and even more convincingly yesterday…if you had been astute enough, you might have jumped on this train earlier. This does require some serious conviction though…

• Support at 2150 has been established and I don’t see it breaking (on the downside) anytime soon.
• Our first real test for the Nasdaq will come when we confront the 50/200dma between 2200 and 2220. Since this is so close to the 2150 support line and since there will continue to be some ongoing concern about the FED’s next move, it’s possible that we may put in another base, either between 2150 and 2200 or right above the 200dma, i.e., just above 2220.
• I don’t see a solid move to the upside occurring till there is a CLEAR signal from the FED that fears about inflation have passed.
• This should come after the August FED meeting – expectations that this clarity is coming should initiate a rally in early August that will carry us strongly to the upside, breaching the prior high on the Nasdaq and taking us into new positive territory by year’s end.

So, what’s my suggestion. Hold no more than 10 positions – hold market leaders and stocks with strong chart patterns, excellent earnings and revenue growth. Keep your portfolio diversified with some holdings in various industries and some holdings in foreign stocks (I love EWW).

My current portfolio holdings/allocations:
LTM – 13.1% / FMD – 10.8% / GRMN – 10.8% / UNT – 10.4% / PRAA – 10.4% / LIFC – 10.4% / CELG – 9.7% / EWW – 8.3% / EWJ – 8.2% / IFN – 7.9%

btw – to one of StocksandBlogs.com’s regular posters: Boris – Excellent call on ISRG. I was monitoring it all day, but just couldn’t pull the trigger yet on this one till I’ve had time to complete an exhaustive fundamental analysis on this one. I recognize that I tagged it a SELL some time back, but Boris & stoxx spirit have both made some interesting responses to my post on June 15th that have me re-assessing my quick dismissal of this market leader.

Have a great 4th of July all!

This entry was posted on Thursday, June 29th, 2006 at 6:22 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed.