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Traders Need to Buy into This Market

By Jeff Clark
Thursday, March 27, 2008

Traders have to look at yesterday's decline and any subsequent weakness this morning as a buying opportunity.
 
I don't know if last week's drop down to 1,260 in the S&P 500 was the bottom of this bear market. Frankly, I don't think it was. But it sure looks like it was a bottom. And in a bear market, there are just two ways to make money: selling short into overextended rallies or buying stocks in anticipation of dramatic bear-market rallies.
 
The action over the past week has the look and feel of the beginning of an intermediate-term bear-market rally.
 
Let me explain...
 
I think last week was the start of this move, and it will continue for the next few weeks.
 
Take a look at one of my favorite momentum indicators – the Nasdaq's Bullish Percent Index (BPCOMPQ)...
 
 
 
The BPCOMPQ is a simple measure of whether the stock market is overbought or oversold. Normally, it bottoms out around 30 or so and then rallies higher.
 
On January 22, however, the index collapsed to a ridiculously low level below 17. Since then, we've seen a strong bear-market rally followed by a decline to a fresh new low in the S&P 500. Notice, though, that the BPCOMPQ failed to make a new low. This "positive divergence" suggests the internals of the stock market are stronger than the major indexes indicate.
 
And the odds favor higher stock prices from here.
 
Let's be clear... stocks are still in a bear market and likely have farther to fall. But for the intermediate term, we should see some strength. I've been looking for a move back up toward 1,400 or so in the S&P 500, and that is my target for this intermediate-rally phase. In fact, I think we might see something closer to 1,425 or so before any serious selling sets in.
 
So as tough as it is to do, traders need to be buying into the current weakness. We can look at selling, and selling short, as the S&P 500 approaches the 1,400 level.
 
Best regards and good trading,
 
Jeff Clark




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Oil at $105... Devon Energy, Petrohawk Energy, Cimarex Energy, Clayton Williams, and Comstock Resources at new highs.
 
High oil means high rig rates... Pioneer Drilling and Whiting Petroleum hit 52-week highs.
 
Regional banks carve out new lows... Silver State Bancorp, Northrim Bancorp, and Tower Financial at 52-week lows.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%