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Thursday, September 27, 2012

Buy Stocks Before the Market Stabilizes

Image representing iPhone as depicted in Crunc...
Image via CrunchBase
 Boston, sept.27. stock trade. This week could prove to be the best time to buy before a post-Halloween rally.
 Stocks fell again Wednesday as headlines from Europe’s troubled capitals caught investors’ attention. Riots in Spain and Greece were broadcast just as those governments are about to release their plans to curb spending. Apple (NASDAQ:AAPL) fell for the third consecutive day following disappointing initial sales of the new iPhone 5. And sales of new homes declined slightly in August.
At Wednesday’s close, the Dow Jones Industrial Average was off 44 points at 13,414, the S&P 500 fell 8 points to 1,433, and the Nasdaq was down 24 points to 3,094. The NYSE traded 738 million shares and the Nasdaq crossed 404 million. Decliners exceeded advancers by about 1.5-to-1 on both exchanges.
Trade of the Day Chart Key
On Wednesday, the S&P 500 broke its first minor line of support at 1,438. The next support line is its former breakout at 1,418-1,419, which has more significance. Below that is the 50-day moving average at 1,409. 
The Nasdaq’s chart reversed from an 11-year high amid profit-taking in the technology stocks. On Wednesday, it violated its breakout point at 3,122 while triggering a sell signal from the MACD indicator. The next support for the Nasdaq is at the September gap at 3,087, and then the September reversal low of 3,040.
Conclusion: The breakout on Thursday, Sept. 13, was solid confirmation that the bull market is intact. It was the direct result of the Fed’s new easing plan and depends upon Fed support to keep the trend going. But even a normal breakout usually results in a temporary overbought situation that leads to a correction, and so investors and traders alike should wait out the inevitable pullback that follows the euphoria. 
On Tuesday, Sept. 18, I warned, “Last week’s move by the Fed of purchasing $40 billion of mortgage-backed securities each month for an indefinite period resulted in a dramatic breakout. However, near term it left the markets somewhat overbought. But it was a meaningful breakout with all of the volume needed to confirm it as genuine. Following a modest pullback stocks should head higher.”
And on Sept. 19, I said, “Following last week’s major breakout, the market is faced with overbought internal indicators. And at the end of this week, it will have to survive a quadruple-witching day.
The Stock Trader’s Almanac, as pointed out by Sy Harding of StreetSmartPost.com, says, ‘September has opened strongly in 12 of the last 16 years but closed weak.’ And he further observed, ‘September Triple-Witching Expirations week can be dangerous, and the week after is pitiful.’”
We are in that “pitiful” week noted by Harding, but it could be a week of opportunity that provides the best time to buy stocks before the market stabilizes in preparation for a post-Halloween rally that could last through late November. Focus on the stocks that you consider real values and buy them at your price.
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