“2009 is a Bull Market in the printing of money and the invention of still more bogus credit. I have been patiently waiting for the benefactors from this fundamental truth to base and break out of trading ranges. Option Expiration is now out of the way and a few days of pulling back could set up something to remember.”
- the benefactors being Commodities, Commodity-based Economies and Emerging Market economies.
Things sat around until this morning and then they went vertical. Very simply put, Big Money is getting back into stocks. That is as good as it gets.
The S&P 500 broke out of a 9-month base today
It did so as the percent of companies above their 200-day average has run to 80%. That tells you the big boys are buying lots of stocks. I have told you for months that that is the key.
I have been getting stopped into lots of holdings. In no particular order -
Transportation (IYT) broke out of a 2-month base today. Lots of people at talking about how “over bought” things are. I included the ADX (trend strength indicator) on the IYT chart to show you that ADX is still at 15 (blue circle). I define 15 on ADX as not trending.
I run scans to find stocks with an ADX between 1 and 15 to show me what is basing and may be moving next. IYT is at the start of a trend, not the end. The only question is which way does this trend go? I hope that it is up…
Here is the Point & Figure chart on IYT. The pattern for IYT is a “spread triple top”. That pattern is the most profitable pattern in the Point & Figure universe. Not the target price – calculated by using the Point & Figure vertical count method (I am not telling you it is going to $82). I just want to show you that the pattern has a very bullish history (past performance no guarantee of future returns, right Mr. SEC?)
Biotech (IBB)
Biotech gave Obama Care the finger today and broke out of a 10-month base. Big Money is voting that Obama Care is DOA.
I want to show you how powerful the buying has been. Here is a 3-day chart of Gilead (GILD). They are a biotech company that makes the key anti-viral drug for combating bird and swine flu (called Tamiflu). Gilead tanked yesterday at the open and was bought hard right out of the gate. It then got bought hard again today. Gilead is trying to break out of a 5-month base.
Another 3-day chart showing you how powerful the buying has been. This one is of Chipotle Mexican Grill (CMG). Look at how this sucker opened lower and was bought with abandon. That is powerful stuff!
Restaurants
Brinker International (EAT), DineEquity (DIN) and PF Chang’s are in 3-month bases. EAT owns Chili’s, Macaroni Grill and On The Border. DIN owns IHOP and Applebee’s.
Chipotle and Cheesecake Factory (CAKE) has broken out of their bases.
I like these basing patterns, because when they work you have the potential for big, fast moves. I wrote the following on Sunday night –
“XME is the ETF for Metals and Mining stocks. XME has a very high correlation with DBB. Far and away, my favorite stock in this group is Pohang Iron (PKX) (just my opinion and not a recommendation).” Here is what PKX has done.
Looks at how OMG has done. Does the base look familiar? OMG makes Chemicals and these trade as commodity plays.
I also mentioned Commodity-Based Economies on Sunday. Mexico (EWW) has done well since.
I owned PKX, OMG and EWW for aggressive accounts. My goal now is to identify what else is setting up for potential breakouts and wait. If prices pull back on what I already have, then I can buy whatever I want. However, if prices keep ramping, then I can get better risk reward buying new stuff breaking out of bases – like AAUK (Gold), EWZ (Brazil) or FXA (Australian Dollar). Again, I am not recommending anybody buy anything – I am simply walking through my thought process!
Some other potential basesWhile many other stocks and sectors were holding up well during the pullback of the last few months, some had more noticable price declines. Their charts look more like First Solar (FSLR). I got into First Solar a few days ago for aggressive accounts and it is up $5 in the aftermarket tonight!
DBA (Agricultural Commodities) has the same setup as First Solar, so I am watching carefully for a break back above the 200-day (Blue Line). I think the fundamentals for commodities are Bullish, as the Fed prints more money. Did you see that the Fed will sell almost $250 billion in new Treasuries next week? Our kids are screwed.
Here is another type of base. This is the base of a laggard. However, it has the potential to be very productive if it can breakout. I will be watching CLF closely and already have some positions in it, after it crossed the Blue Line).
The bottom line to me is this – you don’t get this type of power in a Bear Market. When the Percent Above the 200 Day reached 80% in 2003, the market rallied for 8 months before topping out. Even then, they only pulled back into rising moving averages before going higher.
Remember, the 2003 rally was fueled by artificially low Interest Rates that allowed people to refinance their homes and take cash out to fuel consumption. Team Obama is trying to do the same thing – refinancing over $450 billion so far. They are also having the Fed buy Bonds – at least $300 billion by October. That is a lot of fuel for the Stock Market!
I will continue to focus on that which directly benefits from the creation of new money. As long as the Fed keep printing money, those guys should see continued growth.
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