Monday, July 24, 2006

Barron's Says "Time to Buy"

We opined last week that the stock market may have put in an important low on Tuesday and then it rallied strongly on Wednesday before falling for the next two days.  In that fall, the indexes we follow did not fall through those support areas created on Tuesday.  That left Monday to complete the picture and the stock market was up about 2% for the day showing at least a near term bounce off those new lows from last Tuesday.

The stock market seemed compelled to go up on Monday.  Even BARRON’S was bullish with a front cover that said “Time to Buy” in Bold print and large font.  The picture on the front cover is of a bull blowing up a bear with a large stick of dynamite.  Pictures like that always bring out the contrarian in us and this time we think there will be a major bull trap during this rally.  If the bulls were on the verge of selling their positions, the 200 point up days should calm them down.  We don’t want them to actually sell just yet; we will be looking for a nice rally here and have it fail as we go into the middle of August and Then have them sell and become good little bears.

Don’t forget, this is the “Fed is done” rally and news to that effect will push the market up.  For instance, Tuesday’s existing home sales could support the Fed or not.  We also get to hear about retail sales and consumer confidence, both of which have the potential to push the market one way or the other.

For now we are content to hold some QQQQ’s long but one of the reasons we bought them is to be able to sell into morning strength if and when we get it.  That same day we may be able to jump back into our inverse funds.  At least that’s the current plan.

This evening brought earnings “good” news from TXN, Texas Instruments.  The stock was up 3% during the day and then another 4% after the announcement after hours.

We found it interesting that an analyst at Citigroup raised DELL to a Buy from a Hold and moved their price target to $28 from $24, this despite last Friday’s earnings warning from DELL.  While we don’t subscribe to the $28, the market did seem to like the news and popped the stock 4% on the day.  This is the type of thing that moves the market and we don’t see this being a fundamentally strong thing.  With the stock under extreme pressure and dropping to a multiyear low, there is still reason to sell this stock.  These little pops in the price are consistent with a stock that is going down.

Dow Industrials:  11,051.05  +182.67
QQQQ:  36.41 (we own this)  
RYVNX:   24.32
RYAIX:  25.46
TLT:  85.28
BEGBX:  13.41

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