THOUGHTS OF CONSOLIDATION, ANTICIPATION AND HOW BEING IN CASH IS VERY WRONG
The most impressive piece of technical information coming from the markets is the manner in which important market indices are consolidating at or near their highs in anticipation of a further run to the upside. It's literally picture perfect behavior:
- The BKX is consolidating right on its 200 day MA just waiting to push higher
- The Dow is consolidating right below a generational resistance point around 12,900 on the way towards an upside break of this level. I don't think it will be a successful break until later on this year, however. More on that this weekend.
- The Dollar Index is consolidating on an important support point on the verge of breaking down further. A signal that the inflate or die trade is back.
- EEM - Emerging Markets - broke out this week. An overall positive for the US markets.
- Gold and silver continue to soar. Another sign that the inflate or die trade has been resurrected.
- The S&P 500 is consolidating right around the 1320 range in anticipation of a push up into the 1350 range possibly?
- Volatility continues to plummet.
The bears lifeblood is volatility. Without it there will be no large scale decline that seems to be still be on the mind of a lot of traders. I have posted numerous studies showing the ramifications of a volatility crash following an abundance of put buying as we saw during the second half of 2011. In summary, the markets have a tendency to put together long, grinding bull markets when volatility suddenly disappears after a period of excessive put buying.
The studies are being further confirmed by the price action which is inline with previous grinding bull moves of the past decade. Tech is leading...the small caps are kicking in...the bank stocks are recovering...the Dollar is falling...gold and silver are rising. All of these create the landscape for the move to take place. Ignore the shifts at your own peril.
I continue to believe that the best way to play this is to find a group of companies and simply park your money in them. This isn't the time to be sitting in cash. I have pointed out four different companies this month with tremendous upside potential. PRGS has already posted a 30% gain since I reviewed the name two weeks ago. GSIG continues to rise steadily as well. I recently reviewed SPRT, another company with tremendous upside given current market conditions.
Bear in mind that bull markets move in phases. I have discussed Phase 4 Investor Theory many times on this website. As this bull market progresses, you will see small cap names begin to soar as speculative money attempts to find companies that will outperform larger, less aggressive companies. Positioning in small cap names at this juncture can prove quickly profitable over the coming year.
All the stocks I mention have an intended holding period of 6-12 months. As I come across the right candidates I will share them here.
