Saturday, 9 February 2013

S&P 500 should meet resistance at 1550

The market is approaching 500 days since a 10 percent-plus correction, which is the tenth-longest time in history that such a bull run has occurred. This is the rally you love to hate. All the quants are looking at their charts and they cannot believe this thing is not selling off, All of your classic oscillators are way in to the overbought zone.  But the bulls are charging ahead for the simple reason, money is entering the market. The bull run we see today is because we have regained all of what we lost in the second biggest depression (2008), so investors are feeling a bit more trusting of the market, also returns in bonds are evaporating as rates rise, and finally the commodity bubble in particular gold appears to be flat lining. In short, money mangers are kicking themselves for missing the 15% rise the market enjoyed in January. Money mangers are learning to "Hold your nose and buy".

Still I expect things to pull back here, since momentum is waning and February is typically a flat month, but I expect to recover from any pull back and be in an uptrend until May. Look at the chart below this is the famous NYSE percent of stock over their 50 day moving average, and just like last year, once you breach 80% it is time for the market to slow. Look at a year ago, by May the party is over, compare this time last year, and as you can see the pattern looks the same.

My take on markets like this is to play defensive. I am not the only one that feels this way, here is a chart from Art Hill that shows all the leading sectors right now (except financials) are defensive areas.

Also disturbing -- for those of you that follow the Dow theory financials lead at the end of a market cycle.

Here are three great defensive plays, Cogeco cable (CCA in Toronto), WEC Wisconsin Energy, DVY the iShare dividend ETF based on big NYSE companies. Park your money in these; both your risk and reward will be limited.