[zt]s-p-1325-possible-in-next 2 sessions

George25

s-p-1325-possible-in-next 2 sessions
Posted on January 11, 2012 by Peter Madden

This weeks price action in all of the major averages provides a springboard from which a quick move to S & P 1325 should be realized.  It is my continued view that money flows into equities have Bears on the run.  Negative headlines from Europe and several corporations guiding lower have been consistently shrugged off as money managers prove to be under-invested and chasing a low-volume rally.

While I fervently contend that this move higher will prove to be an unwarranted bear market rally, I have capitalized on this move and have urged traders to maintain a posture of long equities.  On 12/8/2011 I ‘flipped the bull switch’ going long as posted in “A Bull in Bears Clothing.”  Dedicated readers received an update on this call to remain long on 1/3/2012 in my article “Merry New Year,” where I postulated a couple of market observations which have led me to continue holding long positions.  Today I would like to provide a couple of reasons to remain long and strong for the next move higher.

First, we have decoupled from the headlines and price action of Europe.  While I believe that we ultimately return to a correlation with European equities as Sovereign debt proves to outweigh corporate earnings, this is a few months away and allows for this window of US equity appreciation.  The evidence of this decoupling is the inexplicable gains in US bank stocks.  Granted they were slightly oversold at the end of 2011, they have seen moves of 20, 30 even 40% (B of A) in just the seven trading session of 2012.

I believe that this move has caught many money managers underweight equities and will result in a powerful blow-off move higher.  I will remain long stocks until this precipitous move is realized.  I can see this occurring as quickly as this week, especially if we break through the current 1293 resistance level.

Not to give readers the wrong impression, I must point out that this is a very short term call for active traders.  I contend that this move up to 1325 (maybe as high as 1360) will prove to be the high-water mark for the year as European headlines, Sovereign Debt, a China slowdown, and US election uncertainty will drag global equities lower for the rest of 2012.  The bottom line is to enjoy this low-volume, under-invested chase rally while it lasts.  Look for a blow-off top on high volume the sign to sell.  (I will post as I see this happening)  And ultimately, recognize the major headwinds which will outweigh corporate earnings throughout 2012 as this rally provides our highs for the year.