Japanese Prime Minister Naoto Kan said he can see “light at the end of the tunnel” as workers at the troubled Fukushima Dai-Ichi nuclear plant reconnected power to two of the failed reactors.
In a flurry of announcements today, Kan said progress was being made in restoring power to reactors No. 1 and No. 2, while Tokyo Electric Power Co. said it had connected No. 3 and No 4. Minutes later, state broadcaster NHK said engineers were evacuated as gray smoke was seen billowing from reactor 3.
Japan, along with AT&T’s (T) deal being the biggest worldwide acquisition in almost a year, may give the fundamental backdrop for taking some more cash off the side lines. We added to our positions in energy on March 17, including natural gas (FCG) and oil equipment producers (IEZ).
From a technical perspective the recent “extreme oversold” reading on the S&P 500 also convinced us to work on Sunday preparing more buy orders for energy, industrials, and commodities (DBC). Please see the market strategy article mentioned above (with link) for details supporting expanding our exposure to energy.
As we mentioned on March 17, an “oversold” CCI reading of -236, which is rare, recently occurred on the daily chart of the S&P 500 Index. This weekend we went back and found all the cases, during a bull market, where CCI hit -236 between 1982 and 2011. It only occurred 40 times.
From a historical risk-reward perspective, it may offer a very good entry point for cash. Risk-reward ratios historically fell between 5.39 and 30.05 in favor of bullish outcomes when you look at the market’s performance three weeks to twelve weeks after a CCI reading of -236 or lower was registered on the daily chart of the S&P 500.
Before we invest more cash, we would like the market to check off a few more of the “things we would like to see” as shown in the table from March 17 (see “Patience is a Virtue” table).