Why Your Portfolio Could See Another 12% in 2009

May is finally upon us, and we've managed to get there without breaking the uptrend that carried us through April. During the last couple of weeks, we've looked at short-term charts to get an idea of where the market's headed. This week, I thought it would be worthwhile to take a gander and see what the market looks like somewhat longer-term.

Here's the chart:

The chart above shows the S&P 500 over the course of the last 11 months (for a timeline of the recession, click here). From October's precipitous fall to the beginning of March, the markets were stuck in a downward trending channel that had investors wondering if value investing was even relevant anymore.

That all changed when the S&P broke out of its channel as a potentially good earnings season crept its head out. Right now, the next big stumbling point for the markets is the 200-day moving average (the market's average price over the trailing 200 days).

What's significant about that is the fact that the resistance level of the 200-day moving average is around 975 right now for the S&P 500 today – a full 12% higher than the S&P's current level. That resistance level is really the only definitive thing standing in the S&P's way right now... and that's important for one big reason: it has traders' attention right now.

As the S&P climbs nearer to the red line, you can expect technical analysts to watch intently - trading off these kinds of movements is their bread and butter. What that means for fundamentals guys is that you should be watching your portfolios very carefully right now. If you're sitting on decent sized gains, set your stop losses – a market swing could come suddenly.

The bottom line, as always, is to use common sense. A 12% gap between the S&P's current level and the next potential ceiling doesn't mean that it's time to throw out value and start buying... fundamental investors are getting nervous about the seemingly unstoppable stock market; all trends reverse eventually.

Chrysler's Crunch

The biggest news of the week was Thursday's announcement that Chrysler would enter bankruptcy protection. The floundering auto manufacturer is the first of the big three to do so. What's potentially even more significant is the way the market responded to it – investors didn't seem deterred in a big way, only letting the market slip a little from its intraday highs.

That's an important revelation for competitors like General Motors (GM). The nation's biggest car maker could be facing a similar fate sooner rather than later.

Consumers are feeling better about the economy according to numbers released today by Reuters and the University of Michigan. April marked the biggest one-month jump in the Survey of Consumers since October 2006.

But even all that good sentiment couldn't shield big companies from feeling the burn in this environment. Chevron (CVX) and the Washington Post (WPO) saw earnings decline by double digits in releases that came out Friday.

Position Update

The last week in April has been great for the Rhino Stock Report's portfolio. As of pre-market on Friday, our positions were up approximately 20% since inception.

Leaders in the pack include Iconix Brand Group (ICON), which reports earnings on May 5. Once our worst position, we're currently up almost 40% on the stock. Molson Coors Brewing (TAP) also reports on May 5.

SPX Corporation (SPW) and EMCOR Group (EME) reported earnings to investors this week. Both companies beat analyst estimates and surged as a result. We're up 33% and 1% respectively on the two positions.

Disclosure: The Rhino Stock Report has positions in ICON, SPW, and EME.

Comments

[UbuTranscen...:]

Jonas,

I notice this morning that Bloomberg reports: "The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time, according to the median estimate in a Bloomberg News survey ahead of a May 8 Labor Department report."

Reports like this seem alarming and it's not entirely clear to me from your column - do you anticipate the market going up 12% or down 12%?

Thanks, Ubu.

May 03 03:43 AM

[notsosmart:]

eventually down 12% i guess.

May 03 11:02 AM

[InvestBaboo:]

The author is making a bull case for the market run-up from current levels to the 200 DMA which is 975. This is consistent with my technical analysis. As it gets closer to 975 he seems to say that there is a danger of wild swings in the market as many technical traders will buy/sell betting for or against the 975 resistance. To me this implies a buy and hold strategy until you reach the neighborhood of 975 and then be very very very very careful with your stop losses as a real possibility exists for the market to give up some gains and remain stuck in a trading range. This long term prognosis is only as good as how fast I typed these words and a more solid outlook can only be had as we get closer to 975 and the various economic parameters that wait to greet us at that point. Stay tuned.

May 03 12:36 PM

[InvestBaboo:]

By the way to all chartists -- S&P registered a Buy signal on the weekly charts for the first time in this bull rally just this past week. NASDAQ celebrated its 6th weekly confirmation. Great signs that portend a continuing bull run for the markets. Where it stops I don't know but this author makes a credible case that it is 975 that we need to be worried about and he is probably right.

May 03 02:41 PM

[Alan Young:]

Baboo: did you happen to notice that the uptick on Friday which put the weekly close above the resistance line? It only occurred in the last 5 minutes, and on miniscule volume. A pretty shaky foundation, as "great signs" go. I'd proceed with caution.


On May 03 02:41 PM InvestBaboo wrote:

> By the way to all chartists -- S&P registered a Buy signal on
> the weekly charts for the first time in this bull rally just this
> past week. NASDAQ celebrated its 6th weekly confirmation. Great signs
> that portend a continuing bull run for the markets. Where it stops
> I don't know but this author makes a credible case that it is 975
> that we need to be worried about and he is probably right.

May 03 04:11 PM

[Mutual Fund...:]

Really don't excited about these types of charts that are constantly being published. What were they telling investors during the horrific downturn last year. If they really predicted anything most of the masses that got hammered during that time would have been forewarned and taken alternative investment strategies within their portfolios.

My personal charts indicated the crisis and I moved my equities into money markets and cash. Do you know of anyone else that was ahead of the curve and made such a move? I don't......

Doug T.......The mutual fund guy
www.mutualfundwealth.com/

May 03 05:21 PM

[djc:]

Mutual Fund Wealth -- of course -- its all you baby.

The double-top in teh S&P was screaming, as was the bank situation.

Geez just think - if you were in charge of the world, we would have all been saved !

May 03 07:55 PM

[Old Trader:]

12% upside doesn't seem like an appropriate amount of gain, considering the downside if there's a reversal back towards the bottom of the channel, or even close to it. I think I'd prefer to wait for a bit more confirmation that the breakout shown in the charts continues, at which point I'd be willing to enter some short term long positions.

May 03 09:10 PM

[InvestBaboo:]

Digging deep here are we not? :-) Let us see where this week's action puts us.

======================...

Baboo: did you happen to notice that the uptick on Friday which put the weekly close above the resistance line? It only occurred in the last 5 minutes, and on miniscule volume. A pretty shaky foundation, as "great signs" go. I'd proceed with caution.


On May 03 02:41 PM InvestBaboo wrote:

> By the way to all chartists -- S&P registered a Buy signal on
> the weekly charts for the first time in this bull rally just this
> past week. NASDAQ celebrated its 6th weekly confirmation. Great signs
> that portend a continuing bull run for the markets. Where it stops
> I don't know but this author makes a credible case that it is 975
> that we need to be worried about and he is probably right

May 03 09:36 PM

[InvestBaboo:]

The markets roared today and this rally appears unstoppable. The Slumdog Millionaire portfolio scored an astounding ONE DAY GAIN OF 12%. This is on top of the 6% plus gain it achieved last week which was a relatively flat week for the markets. The portfolio is listed in my InstaBlog.

Please note that the mutual funds are hungry now and they will come looking for those unfairly beaten down names which were once mega stocks but were reduced to slumdogs by the crash of 2008. If even a small section of equities in this portfolio see their glory day highs you stand to make an incredible killing. Some slumdogs have nearly doubled since I added them to the portfolio but I believe they have a long way to go. They have the power to triple or even quadruple within the next year if my theory of a reverse black swan event holds true. So far this theory is unfolding just the way I envisioned it!

May 04 08:54 PM