Trust This Rally

Wednesday, September 01, 2010

Bear Market or Bull Market?The level holds again, September starting strong

The much-watched 1,040 level on the S&P 500 held on its 5th test since the April highs. My toe dip last Friday turned into an aggressive long yesterday as we saw strength off the open. Of course, reversal trades are never easy and the late-day sell-off tricked me into selling about 1/3 of my position before the close as I started to fear a gap down through 1,040. Alas, the gap up came and the willingness to be a buyer at the 1,040 level is being paid today compounded by a very bullish data point at 10 AM: August ISM data handily topped estimates and came in ahead of July readings. ISM's Ore was quoted as saying they're seeing a "major restocking" occurring.

I realize I didn't get a post out yesterday telling everyone I was buying so writing today talking about how I bought is somewhat useless. Yet, it's my post so I get to write what I want and you could have seen my portfolio on (and the shameless plug...I'm on a roll today :)

My rationale for being a buyer was based on many factors which I explained in a long post over the weekend. Long bonds finally had a downtick signaling that, at the very least, momentum in that market had stalled opening up the possibility of a shift to equities. Doctor Copper, my leading indicator, is in breakout mode after showing hardly a whiff of weakness through August as equity markets dropped 4.7% for the month. And, although I generally despise sentiment readings, suffice it to say that sentiment was really poor. All these data points aligned with a level where I believed risk/reward was drastically in my favor.

We'll see how this all plays out but I think yesterday was the buy of 2010 and I'm holding for much higher prices. We'll see how long it takes to eat those words :)

Brandon R. Rowley
"Chance favors the prepared mind."

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