Good Time to Put Cash Into Equities - Encouraging Signs Abound

In his final report for Octagon Capital, technical analyst Leon Tuey continues to stress that this is a good time for investors to put cash into equities. He insists that short-term weakness should not be feared but rather embraced as a great buying opportunity.

Mr. Tuey told clients:

The unprecedented monetary stimulation (worldwide), the prospect of an economic recovery, the historic undervaluation, the extreme fear witnessed in October, and the record cash on the sidelines all bode well for the equity market.

Instead of looking at the Dow Jones Industrial Average or S&P 500 Index, which are weighted by market capitalization and represent a limited universe of stocks, he recommends investors examine all other market indices, and more importantly, the market’s internals such as advances/declines and new highs/new lows.

After a year of extreme volatility, the market’s stabilization in December was anything but exciting. However, it has been showing signs of sub-surface improvement, Mr. Tuey said, highlighting the fact that the NYSE Daily Advance-Decline Line broke through its 50-day moving average and posted a new recovery high on Dec. 26. “This suggests that the broad list of stocks has been performing better than the major market averages.”

He also noted that while the S&P made its low in November, other breadth measures such as the High-Low Index, the Summation Index and the Bullish Percent Index all made their lows on October 10.

Another encouraging sign is that most market indices have traced out or broken out of bottoming patterns. Most are what technical analysts call a “head-and-shoulders” bottom reversal, while some issues have traced out climactic bottoms.

“Clearly, the worst is behind and the bull is in control,” Mr. Tuey said, adding that with the major market factors continuing to provide bullish readings, it remains at a low-risk, high-reward juncture point.

Fans of Mr. Tuey need not fret, he will still be watching the market closely and you'll hear from him again soon.

Comments

[Socialism c...:]

Dow 5000 before April. Mark my words. Anyone who thinks we somehow turned a corner just because we are out of 2008...is delusional. Manufacturing just dropped off a cliff. So many ripple effects have yet to hit the fan. We are seeing a sudden glut of political scandals. Social unrest is in the wings. If you wanna look at technicals and base your moves on that...go ahead -- there are always two sides to a trade, and I need someone on the other side of mine.

Jan 07 03:09 AM

[Paul Price:]

It would have been a much better article if you had written this in late November when things were really cheap.

Jan 07 07:46 AM

[Carl Spackler:]

BUY, BUY, BUY now, so I can take your money! This is a classic bear trap. Last 4 times the S&P crossed the 50 day MA, it took an average of 14 days later to resume its steady decline. Today was the magic day 14 and I had my short plays all in place. Thank you perma-bulls for your contribution to my new home expansion!

Jan 07 10:21 AM

[Kunst:]

Normally, all that fiscal stimulation would do what the author says. But in this case, $30 trillion of net worth has disappeared in a very short time. All the bailouts and give-aways don't come close to filling that sinkhole.

That said, I think they will pour money into the world economy until it overflows, but not until the situation gets more desperate than today.

Jan 08 01:54 AM