7 Bullish Signs For Wall Street

Includes: QQQ, XLF
by: BubbleBustInvesting

Anyone who has followed closely market action in the last two weeks has probably noticed seven bullish signs:

The first sign is news out from Dell (NASDAQ:DELL) that it is talks with two private equity firms for a possible buyout, sending the stock sharply higher in early afternoon trade.

News of this sort is an indicator that high-technology stocks are undervalued, and may fuel a rally in the sector -Hewlett Packard (NYSE:HPQ) was also sharply higher following the Dell news.

The second sign is that Apple's stock has been rebounding after an early sell-off, holding firmly above the $500 mark, an indicator that markets may have already discounted all the negative news about the company.

The third sign is bidding wars for takeover plays, as has been the case with companies such as Sprint Nextel (NYSE:S), Dish Network, Clearwire Corporation (CLWR), and Knight Capital. Bidding wars are usually bullish for Wall Street as they push market valuations higher.

The forth sign is a wave of job cuts at large firms: 11,000 at Citigroup (NYSE:C), 5,400 at American Express (NYSE:AXP), 1,600 at Morgan Stanley (NYSE:MS), and 290 at Campbell Soup (NYSE:CPB) -- to mention but a few. Job cuts are certainly bad news for Main Street, but they are bullish for Wall Street as they add big to the bottom line. They further allow companies to recruit new talent as they replace unprofitable with profitable product lines.

The fifth sign is dividend hikes: 100% at Ford (NYSE:F), 12% at General Electric (NYSE:GE), 10% at Boeing (NYSE:BA), and 7% at Intel. Dividend boosts are usually an indicator of improving financial situations at companies and make their stocks more appealing to investors, especially in this low environment.

The sixth sign is a stabilization of European economies and a rebound in the Chinese economy -- a positive development for commodity and materials companies that sell a big chunk of their output to China.

The seventh sign is liquidity. Record low short-term and long-term rates leave Wall Street as the sole haven for superior returns, as confirmed by the record inflow of funds into equity funds.

How can investors capitalize on these bullish signs?

By accumulating positions in two areas that stand to benefit the most from these areas, high technology and financial stocks, using ETFs like the Powershares QQQ Trust (NASDAQ:QQQ), which tracks the performance of NASDAQ100 index, and Financial Select Sector SPDR Fund (NYSEARCA:XLF), which tracks the financial segment of the S&P 500.

A few words of caution: The world economy is still under the aftershocks of the Great Recession, which may limit global growth and equity gains. Complacency shouldn't be a substitute for due diligence.

Disclosure: I am long HPQ, QQQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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