In the new millennium I’ve made some good market timing calls and some not so good calls. In March 2000, I recommended that investors reduce holdings in NASDAQ stocks by 50%. Then, between July 2002 and October 2002, I was a major bull, and re-iterated that bullish call in March 2003 as our troops marched towards Baghdad. Unfortunately, margin calls forced many of my readers who stayed long to bail-out at the lows.
In June 2005, I called the summer top for the homebuilders. At the end of 2006, I called the top for community banks. In March 2007, I called the top for the regional banks, but was pre-mature on the bearish overall market call, though I stuck to my guns with a re-iteration all the way into October 2007 when I said that the Dow would not sustain gains above 14,000. I was a bear until March 2009, when I called for a 40% to 50% bear market rally.
In 2010, I under-estimated the potential upside to the market, but my stock selection process of “Buy and Trade” limited the extent of this bad call. Starting in September 2010, I shifted to a more balanced market outlook looking for Dow 11,235 by election day, on the Republican victory and QE2. My ValuTrader model portfolio was up 35.2% in 2010, solidly beating the S&P 500. At year end, my call for 2011 has been a Dow top below 12,600.
Reviewing Reasons to Book Profits:
1. The fundamentals showed that stocks were overvalued and we have had three ValuEngine valuation warnings when more than 65% of all stocks are overvalued. The January warning was ignored by the market, but so far stocks peaked with the warning issued on February 18th and re-iterated on March 3rd. During this period, we have seen many days where all sixteen sectors have been overvalued, with eight to eleven by double-digit percentages. The Dow high was 12,391.29 on February 18th.
2. I believe that the Federal Reserve will allow QE2 to end at the end of June and that there will be no QE3. At that meeting the FOMC will remove “extended period” from their statement. The federal funds rate has been zero to 0.25% since December 16, 2008.
3. The weekly chart for the Dow Industrial Average has been overbought since the week of October 9, 2010. Momentum needs to fall below 8.0 and the Dow must have a weekly close below the five-week modified moving average, which ended last week at 12,017. A negative weekly chart confirms the market top.
4. It will be hard to maintain a bull market with European debt issues, African and Middle-East political unrest, problems at US state capitals, and inflationary pressures in China.
5. The housing market remains depressed and community banks remain stressed.
Key Levels for the Major Equity Averages
The Dow Industrial Average (12,213) Libya Trading Range: 11,983 to 12,391. My annual value level is 11,491 with a daily pivot at 12,205, and weekly and monthly risky levels at 12,483 and 12,741.
The S&P 500 (1320.0) Libya Trading Range: 1294 to 1344. My quarterly value level is 1262.5 with a daily pivot at 1317.0, and weekly and monthly risky levels at 1350.3 and 1381.3.
The NASDAQ (2752) Libya Trading Range: 2706 to 2840. My monthly value level is 2629 with a daily pivot at 2745, and weekly, quarterly and monthly risky levels at 2829, 2853 and 2926.
The NASDAQ 100 (NDX) (2323) Libya Trading Range: 2285 to 2403. My monthly value level is 2250 with a daily pivot at 2328, and weekly, quarterly, and monthly risky levels at 2398, 2438 and 2499.
Dow Transports (5147) Libya Trading Range: 4918 to 5306. My quarterly value level is 4671 with weekly, daily and annual pivots at 5052, 5086 and 5179. The Transports closed below its five-week modified moving average in each of the two weeks with declining momentum, which is a negative weekly chart profile. A close above this week’s five-week at 5111 shifts the weekly chart to neutral.
The Russell 2000 (824.66) Libya Trading Range: 795 to 838. My quarterly value level is 765.50 with a daily pivot at 816.86, and weekly, daily and monthly risky levels at 831.09 and 850.79.
The Philadelphia Semiconductor Index (SOX) (447.94) Libya Trading Range: 439 to 474. My monthly value level is 402.46 with a daily pivot at 436.99, and monthly and quarterly pivots at 453.89, 458.32 and 465.93, and weekly risky level at 485.92.
10-Year Note – (3.475) Daily, weekly, annual, and semiannual value levels are 3.544, 3.642, 3.796 and 4.268 with monthly, annual, and semiannual risky levels at, 3.002, 2.690, 2.441, and 2.322.
Comex Gold – ($1429.6) Weekly, annual, quarterly, semiannual and annual value levels are $1385.4, $1356.5, $1331.3, $1300.6 and $1187.2 with monthly and quarterly pivots at $1437.7 and $1441.7, and daily and semiannual risky levels at $1446.3 and $1452.6.
Nymex Crude Oil – ($104.16) Weekly, monthly and semiannual value levels are $97.78, $96.43, and $87.52 with my annual pivots at $99.91 and $101.92, and semiannual, daily and quarterly risky levels are $107.14, $107.24 and $110.87.
The Euro – (1.3904) My quarterly value level is 1.3227 with a daily pivot at 1.4040, and weekly, semiannual and monthly risky levels at 1.4446, 1.4624 and 1.4637.
Daily Dow: (12,213) Annual, quarterly, semiannual, and semiannual value levels are 11,491, 11,395, 10,959, and 9,449 with a daily pivot at 12,205, and weekly, monthly and annual risky levels at 12,484, 12,741 and 13,890.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.