Waiting For Market Strength

by: Brandon Fredrickson

Markets were strong across the board on Wednesday after news that Warren Buffet might be riding in on a white horse to save some insurance companies. January retail sales came in at a dismal +0.3%, but it was enough to cheer up traders who had been expecting a fall of about that much after December's drop of 0.4%. The markets also showed pleasure with Washington finally passing the bill should stimulate China's economy when Americans go hold wild with their $600 checks that the Government will take out a loan from China to give them. These consumers will then likely go to Wal-Mart (NYSE:WMT) or some other type store to buy goods made in China. Score China +1!

The Federal Reserve's Head Idiot at the helm was set to testify before the Senate Banking committee yesterday. Several of the Regional Fed Heads have been openly talking about the risks of recession being high. Fed fund futures are currently showing a 50% chance of another drop in Fed lending rates in March. Selfishly, I wish they would just stick to baseball – at least then they can not be tinkering with something they know nothing about and screwing me, you, my children, yours and several generations of American's to come. Of course, we should not worry about the very real infection that has taken hold of our minds and economies, Obama is a hope monger and makes us all feel warm and fuzzy inside!

The Dow Jones Industrials (NYSEARCA:DIA) closed up 178.83 points to close at 12,552.24, while the more broadly based S&P 500 (NYSEARCA:SPY) closed up 18.35 points and closed at 1367.21. The Nasdaq (QQQQ) recorded the best gains, adding 53.89 points, for a total gain of 2.32%. It closed at 2373.93. Smallcap stocks also fared pretty well with the Smallcap S&P 600 (NYSEARCA:IJR) rising 2.05%, closing the day at 380.17. Investors Business Daily is calling Wednesday's action a follow through day because Nasdaq Volume rose about 1% compared to Tuesday's levels. My own personal stance is going to remain very cautionary, mostly in cash. The 1% in Nasdaq Volume seems rather meaningless to me, and NYSE volume actually pulled in around 7%.

In addition to that, my own scanning reveals very few stocks that are coming out of a sound bases to provide the leadership for a new leg up. Several stocks are coming off bottoming type patterns, but this very rarely fuels sustained upside moves. A few stocks are showing good patterns, among them Watson Wyatt Worldwide (NYSE:WW), which started its sharp move a week ago and has continued to add on gains since then. Several Latin American issues have also been strong, examples include ECH (Chile Holder) and Mexican Coca-Cola bottler Femsa (NYSE: KOF).

Strength in Latin America (NYSEARCA:ILF) is actually a theme I trust more than strength and growth here in the United States. Record numbers of migrants, both legal and illegal, are going back home to Mexico (NYSEARCA:EWW) because there simply are no longer jobs outside of Agriculture for them in the United States at this time. Mexico experienced a net gain of 25% in foreign investments last year, and FOR THE FIRST TIME IN HISTORY experienced lower inflation than we did in the United States. Other parts of Latin America are seeing similarly positive situations develop for astute investors to take advantage of.

New Market Corporation (NYSE: NEU) has broken out of a decent base on good volume; low volume pullbacks should provide a buying opportunity if the market cooperates. The same thing also applies to Femsa (NYSE: KOF) and Wyatt Worldwide (NYSE: WW). New names to watch would include The Buckle (NYSE: BKE) on a breakout, Solera Holdings (NYSE: SLH) on a breakout and Union Drilling (NASDAQ: UDRL) on a low volume pullback should the market to the same. The homebuilders continue to have strong patterns that should offer buying opportunities in the future.

Disclosure: Long Femsa (KOF), ECH (Chilean ECN as part of my theory on Latin American Growth) and Wyatt Worldwide (WW). I no longer have short positions and am still just over 80% in cash. Should the market show me better signs of strength I will have no problem bringing that number up, but with the political economy as it is, I do not really expect much real strength to show up anytime soon.