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Dallas, TX
April 1, 2008, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Bears Get April Fooled.
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What's Hot Today: |
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U.S. stocks index futures were pulling back on 4-2 as profit taking and caution
ahead of Fed Chief Bernanke's appearance before Congress combined to provide
excuses for sellers. The rally, though, was fairly convincing.
Today's Economic Calendar: 7:00a.m. MBA Mortgage Refinancing Index. Previous: +82.2%. 8:15a.m. ADP/Macroeconomic Private Payrolls Forecast. Previous: -23K. 10:00a.m. Feb Factory Orders. Expected: -0.8%. Previous: -2.5%. Sources: The Wall Street Journal and Marketwatch.com.
News For Thought
China's unrest problems are getting worse. According to The Wall Street Journal, Muslims in Northwest China are starting to stir. The paper reported: "Antigovernment unrest that began among Tibetans now appears to be spreading to another large ethnic-minority group, Turkic-speaking Uighurs, a predominantly Muslim people who populate China's northwestern border province of Xinjiang." In effect, the government would swap cash for nonperforming loans, pumping liquidity into the financial system. Because the plan would lift borrowers with negative equity back above water, homeowners would have greater incentive to avoid foreclosure."
Key technology shipped by the U.S. through the United Arab Emirates (U.A.E.) found its way to Iran and subsequently to roadside bombs in Iraq, which killed U.S. soldiers. According to the New York Times, this prompted a little publicized diplomatic squabble between the U.S. and the U.A.E., and the passing of new laws. However, according to several sources cited by the Times, the new laws in the U.A.E. are not being enforced.
One well placed source told the Times that it is "easy" to ship anything to Iran, and that the new laws "has had no effect." The emirates, according to the Times have "deep economic and cultural ties with Iran, which is only about 70 miles across the Persian Gulf from Dubai. As many as 400,000 Iranians live in the emirates, many of them traders who track down goods in the sprawling consumer bazaar of Dubai and then re-export them to Iran, at times ignoring United Nations trade sanctions related to Iran’s nuclear program and a broader United States embargo." |
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Bears Get April Fooled.
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Staying Power Evident In Rally
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U.S. stocks delivered a convincing performance on April Fool's Day, leaving the bears in head scratching mode. And while nothing is ever certain, there is enough evidence to suggest that this rally could last.
First things first, though – this is the time of the month when there is significant seasonal pressure for stocks to rally, as big pension funds tend to buy stock in the first five days of a new month. That means that this is likely to be a good week, at least until Wednesday or Thursday, when money managers will start to worry about Friday’s employment report.
That being said, you’ve got the makings of a potentially explosive rally in the works as the ingredients of a bull market are all in place. First, you’ve got lots of hand wringing and worrying, going with end of the world headlines. The U.K.’s Independent ran a headline on 3-31 that touted the “Great Depression” in America, and of course, The Drudge Report latched on. It doesn’t get much gloomier than that, which makes our contrarian little souls rejoice, albeit cautiously.
Next, you’ve got the world’s biggest central banks pumping in liquidity into the money markets at breakneck speed. And liquidity feeds the beast known as the bull, bull market that is.
Also encouraging is the fact that we've had three explosive 9 to 1 up/volume to down/volume days on the NYSE in the last month, coupled with intermittent interest rate decreases and other significant maneuvers from the Federal Reserve.
To be sure, the 9 to 1 up volume to down volume days have not been as accurate of late as they may have been in the past. Yet, combined with the Fed's liquidity maneuvers, this trio of powerful days might indeed be the real thing.
The charts are also encouraging. The Nasdaq 100 (NDX, below) took out the 1800 resistance level with ease, on higher volume, taking the Nasdaq 100 Trust (QQQQ) nicely higher. Visit our Technology Timing sector for more on QQQQ. Dr. Duarte owns QQQQ shares.
Chart Courtesy of StockCharts.com
The S & P 500 (SPX, below) also moved nicely higher, delivering a close above its 50-day moving average, reversing the intermediate term trend. The S & P still has some 4 to 5% of up side potential before running into its 200-day moving average.
Chart Courtesy of StockCharts.com
On the sector side of things, biotech stocks (BTK, below) scored a nice set of gains, also reversing long standing intermediate term down trends in many cases.
Chart Courtesy of StockCharts.com
Finally, there is plenty of fuel for the rally, as gold, commodities and foreign currencies, the areas where investors have taken refuge during the recent mini-bear market, are starting to show signs of weakness. If money from China, which has been weakening of late, starts to aggressively look for an exit, we could see an acceleration of the up trend in the U.S.
Conclusion
The tide seems to be turning toward the bulls' side of the ledger. Lots can go wrong, but suddenly more seems to be going right for the bulls.
The bottom line is that if this doesn’t turn out to be a big enough rally to last several weeks to several months, something is really wrong, and there isn’t anything that can save the bulls. How will we know? If we have three or four high volume selling days in the next one to two weeks, that would be a pretty bad sign for the bulls.
Otherwise, the bulls get the benefit of the doubt, barely. But they get it, at least in the short term, or until someone can prove that they’re wrong.
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Technical Summary: |
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Chart Courtesy of StockCharts.com
Stocks Blast Off To Start Quarter
April Fool's day proved to be a good one for the bulls. The rally had good volume, excellent breadth, and the market still has lots of worries.
Another round of interest cuts is also possible, making the case for stocks even more attractive. And there is plenty of money on the sidelines waiting to come in.
Our growth stock list is starting to expand. Our SPY model is long. See below for details.
For now, patience is still important, but it's a good time to start building long positions.
Chart Courtesy of StockCharts.com
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Market Moves - Stock Of The Day
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Nasdaq Biotech ETF (AMEX: IBB) Reverses Trend
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Long thought to be down and out, the Nasdaq Biotech ETF (AMEX: IBB) seems to have changed course.
Chart Courtesy of StockCharts.com
Biotech has been the no respect sector for a long time. Ever since the genomics craze fizzled the sector has been full of one hit wonders and lots of disappointment.
Thus, the nice bounce registered on April 1st, caught our attention. To be sure, there is probably not a whole lot that's new in the way of drug development or immunological testing.
After all, with Medicare funding cuts hitting the drug sector, it's hard for drug companies and related areas of the business to get too excited about the future.
Yet, there is always activity in biotech, as start ups and established names can whip up a frenzy at any moment when new things develop.
Or maybe, these stocks have been so abandoned for so long that they look cheap to big money guys looking to put their cash hordes to work after a pretty aggressive, albeit fairly short bear market leg.
What's really important is that a good momentum sector, biotech, seems to be getting some play all of a sudden. And that means that it's worth tuning into the action there. |
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