Noticing Stocks

A Prediction on the Press:

In the next couple of days the popular press will probably take notice that the market has had a pretty decent run over the past 10 days or so. I've already illustrated in other posts that stocks experience sharp upward thrust in price. This upward movement usually comes in trading periods lasting 1-to 40 days. This equates to short trading bursts usually lasting less than 2 months. Often this type of move happens after periods of grinding price decline similar to what we've seen since the beginning of the year. Let's illustrate some quick moves that have recently occured*:

Nasdaq Composite up nearly 5% in the past 6 trading sessions.*
S&P 500 about 3.5% in the past 6 trading sessions.*
Nasdaq 100 Trust {QQQQ} over 10% since April 29 lows.^~
SPDR Technology Sector {XLK} almost 10% since early April lows.^~

Still this move only gets us back to where most stocks traded in mid march. That means the majority of equities are still lower than where they finished 2004. I still operate under the thesis that stocks are for the most part trying make it back to breakeven by midyear. That thesis can obviously change as events dictate, but for now it looks plausible.

In general at this time, stocks look just a little overbought-meaning that in my opinion the majority of equities may have moved higher a bit too fast. Please don't take this to mean that there is no value left in stocks. There are still a few sectors and individual stocks that I think are attractive based on their current prices and on a fundamental basis. Still a pause in this advance or even a small pullback in share price is a higher probablilty now for most stocks. I still think such a pause would just set the market up to get us to back to where we were on January 1, 2005.

The irony is that if the market does pause for a bit it will most likely happen just when the press begins to notice that stocks may have come back from the dead. And speaking of irony.... the oil universe is down about 10% in the last month, its price peaks coinciding with certain well known voices in the investment community predicting $100 a barrel oil. On the opposite side technology has made a similar move higher {see XLK listed above}. Technology started moving up about the time oil peaked and as some of the same voices said that technology was dead. In the long run both of these predictions may prove to be correct but for now they just look silly.

Again I'm just giving you my thinking here. I'm not saying that this is going to happen, or that others should act based on my thoughts. I've been saying for almost 8 months that the market is still consolidating its 2003 post-Gulf War move. (Clients: see my end of the year letter sent in February 2005. All others see my April 28th, 2005 post). We'll change the thesis as events warrent. For now it appears to be on track.

*Source CNBC: "Closing Bell," May 23, 2005.
^Market Data taken from sources deemed to be accurate but cannot be guaranteed.
~Mr. English, his affiliates, controlled accounts and certain clients hold positions in QQQQ and XLK although positions are subject to change at any time.

Please note market information is for informational purposes only. Unless you consult with Mr. English and he understands your investment profile, you act on information contained in this post at your own risk.