I last posted about the overall market
here. The probability is growing that 1134 marked a multi-week/month bottom. Therefore, I used the market weakness today to buy some stocks to hold for a few weeks/months. Hopefully 1134 holds.
Notice on the Dow Industrials chart above that an ABC correction from 14198 may be complete for now. Positive MACD divergence is nearly confirmed, and volume spiked big time, just like at previous multi-week bottoms.
I am noticing a profound difference in this rally attempt vs. the rally attempts at previous trend lows. After the Nov. '07, Jan. '08, and Jul. '08 lows, the market rallied strongly for 5-10 days with little pullbacks, probably producing a psychology of "the market must have bottomed, buy buy buy." This time around, after a strong two-day rally, we are seeing a sharp decline. The pschology at this point seems more like "oh looks like the bailout is going to fail and we are going back to new lows." However, the volume tells a different story. Notice after two strong up days on huge volume, the past two down days have occured on tiny volume. This fact should increase the likelihood of a continued rally, since the selling pressure is dropping significantly.
The rally, as shown by the15m intraday Dow chart above, also sports a different wave pattern than did the rallies off previous trend lows. Notice that this time around, price rose in 5-waves, and is is now being corrected by a choppy, slow decline. At the previous trend lows, the initial rally occured in 3-waves (corrective). Theoretically, 5-waves up indicates that the underlying trend has turned upwards.
Citigroup (C) is the first stock I bought today. I last posted about C here. Price made a slightly lower trend low, but then reversed sharply, forming an bullish engulfing candle on record volume. In fact, 26.6% of C's entire float was exchanged last week. Clearly, if investors were willing to purchase a quarter of C in one week, they must have faith in this company's staying power. Finally, MACD divergence continues to portend a strong bullish move. I think we could get back to $30.
My second stock buy, Goldman Sachs (GS), has an even more amazing chart than C. From the trend low in 2002, GS rallied in 5-waves, and has now corrected this rally in 3-waves. Of course, the downtrend could continue from here, but consider that nearly the entire stock base was traded last week. The buying was so intense that even amidst speculation of bankruptcy, GS only declined 15% on the week! Also, Bershire Hathaway's $5 billion investment in GS should boost the market's confidence in banks.
The 78.6% fib, the channel bottom, and the Wave2 low all provided support. I think we could see $160 on the short term, and much higher prices if GS rallys above the down channel.
Apple (AAPL) was my third buy. My last long term look at AAPL was posted here. I like AAPL's products and its management. Right now it has a reasonable P/E, but as I wrote in that last post, the Wave count indicates that AAPL run could have ended for some time. However, since there are 3-waves down from $192, and priced bounced of the support trendline, I think we could see $160-170 as AAPL follows the rest of the market that (hopefully) rallies.
Ford (F) is a bit more of a speculative play for me. Based on how bearish everyone is on F, I would assume the worst case scenario has been basically priced in. Businessweek had a super bearish cover story on F, but I think F's strategy to start producing smaller, more fuel-efficient cars should pay off.
On the technical side, notice that price has formed a decent base above $4 and is posting MACD divergence. During the recent market decline, F actually rallied on increasing volume, and is now correcting on lower volume. This tells me that if the overall market picks up, F should outperform. $6 to $6.50 is my initial target.
My last buy was the India Fund (IFN). India was a hot investment last year, but since that speculative bubble popped, the ETF has shaved off 58% of its value. I think India will continue to grow quickly thanks to a strong knowledge-capital base that can take advantage of the growing knowledge economy, so this seems like a decent buying oppurtunity.
After a multi-year bull market that formed in 5-waves, price has so far corrected with 3 down waves. This could be WaveA of a larger ABC correction, but either way, I think we should see a bounce since the 61.8% retracement provided good support. There is also slight positive MACD divergence that should lead the price upwards. $50 seems like a reasonable target.
Final Note: A last important indicator for an extendeed uptrend is a follow-through day (+1.7-2% for a market index on higher volume). William O'Neils research indicates that no significant uptrend has started without a follow through day that occurs within 4-10 days of the market low.
