May 2006 - Market Looking Toppy
Market looking toppy…are you prepared?
With the market looking shaky, it is vital to re-evaluate your positions to maximize profit and reduce downside risk. With that being said, it is important for investors to understand a common characteristic of market tops that is quite different from market bottoms. Market bottoms are often V-shaped and sharp while typically accompanied by a selling climax. After the selling stops, it often takes many months for bases to develop and the real leaders emerge when those bases are broken out of on the upside with good volume. It is rare for a substantial percentage of stocks to make bottoms; base-out and breakout before the final low in the indexes are made. This is important to know…always remember that the trend is your friend. Get in early but make sure the trend is truly on its way to the upside.
Market tops are quite different. Tops take much longer and result from fewer and fewer stocks making new highs. After the few strong leaders hold the market up, they finally crack leading to a market consolidation which can be very costly if you are not paying attention.
The market has been slowly losing upside momentum all year. On a weekly chart, the S&P’s OBV is decreasing despite the market moving higher creating a negative divergence. To add insult to injury, stochastic’s show the market as over bought. Those two major factors are telling quite the story. It is almost like playing poker knowing what your opponent is holding.
Even three out of four strong stocks typically retreat in a downside correction, and it only gets worse from there. Housing will continue to cool through 2006, oil is going no where but up, and Iran troubles are just beginning.
Did you know that there has not been a major oil find since the 1970’s? Gas at $4 to $5 a gallon is just around the corner…literally. With crude oil taking up approximately 50% of the cost of gas, look for gas prices to now rise at almost the exact percentage that crude goes up. With other factors remaining more and more constant in the price of gas, crude is now the “x” factor in determining what we pay for gas. Did you notice that Exxon made $8.4 billion last quarter? Guess what…they are expected to make even stronger profits next quarter.
I am not blaming Exxon and big oil for our gas prices. They have run a solid business with billions invested. Simple supply and demand is causing the cost of crude to run. Some may argue that they control the supply thus controlling the market. Some also argue that some oil reserves are overstated which could mean there is even less oil than we expect. With China and India growing exponentially and war torn areas holding reserves, it is only going to get worse before it gets better.
CSI subscribers have been trained and informed on how to profit in this type of market. With the market topping, evaluate your limit orders and tighten your stops. On the short side, weak stocks are going to get weaker. Despite all the wildcards out there, it stills boils down to COMMON SENSE!
Josh Weis
Contributing Editor
With the market looking shaky, it is vital to re-evaluate your positions to maximize profit and reduce downside risk. With that being said, it is important for investors to understand a common characteristic of market tops that is quite different from market bottoms. Market bottoms are often V-shaped and sharp while typically accompanied by a selling climax. After the selling stops, it often takes many months for bases to develop and the real leaders emerge when those bases are broken out of on the upside with good volume. It is rare for a substantial percentage of stocks to make bottoms; base-out and breakout before the final low in the indexes are made. This is important to know…always remember that the trend is your friend. Get in early but make sure the trend is truly on its way to the upside.
Market tops are quite different. Tops take much longer and result from fewer and fewer stocks making new highs. After the few strong leaders hold the market up, they finally crack leading to a market consolidation which can be very costly if you are not paying attention.
The market has been slowly losing upside momentum all year. On a weekly chart, the S&P’s OBV is decreasing despite the market moving higher creating a negative divergence. To add insult to injury, stochastic’s show the market as over bought. Those two major factors are telling quite the story. It is almost like playing poker knowing what your opponent is holding.
Even three out of four strong stocks typically retreat in a downside correction, and it only gets worse from there. Housing will continue to cool through 2006, oil is going no where but up, and Iran troubles are just beginning.
Did you know that there has not been a major oil find since the 1970’s? Gas at $4 to $5 a gallon is just around the corner…literally. With crude oil taking up approximately 50% of the cost of gas, look for gas prices to now rise at almost the exact percentage that crude goes up. With other factors remaining more and more constant in the price of gas, crude is now the “x” factor in determining what we pay for gas. Did you notice that Exxon made $8.4 billion last quarter? Guess what…they are expected to make even stronger profits next quarter.
I am not blaming Exxon and big oil for our gas prices. They have run a solid business with billions invested. Simple supply and demand is causing the cost of crude to run. Some may argue that they control the supply thus controlling the market. Some also argue that some oil reserves are overstated which could mean there is even less oil than we expect. With China and India growing exponentially and war torn areas holding reserves, it is only going to get worse before it gets better.
CSI subscribers have been trained and informed on how to profit in this type of market. With the market topping, evaluate your limit orders and tighten your stops. On the short side, weak stocks are going to get weaker. Despite all the wildcards out there, it stills boils down to COMMON SENSE!
Josh Weis
Contributing Editor
posted by Marc Barhonovich | 8:23 AM
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