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My Investment Strategy since February 18th - Sell Strength

|Includes: Caterpillar Inc. (CAT), IBM, MMM, UTX
My recommended investment strategy during the first quarter earnings season has been to sell strength and raise cash particularly for stocks reaching new all time highs.
 
Many Big Name Stocks have recently tested All Time Highs. My recommended investment strategy during the first quarter earnings season has been to sell strength and raise cash to 50% particularly for stocks reaching new all time highs.
  • It’s getting tough to justify investing in emerging markets on the global growth story considering that the iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM) is down 1.7% year to date, and with the iShares FTSE China 25 Index Fund (NYSEARCA:FXI) is virtually flat year to date.
  • Dow components that reached all time highs on May 2nd and are overvalued according to ValuEngine are: Caterpillar (NYSE:CAT) (18% OV), IBM (NYSE:IBM) (14% OV), 3 M Corp (NYSE:MMM) (5% OV) and United Technologies (NYSE:UTX) (18% OV).
  • Long term investors can lock in significant gains on these names by selling half their positions, as the individual price patterns are similar to the Tech Bubble of 2000.
 
The Dow Industrial Average has actually moved sideways since February 18th: The Dow Industrial Average ended last week at 12,596, up 8.8% year to date, but only 1.3% above its February 18th high, after testing a new multi-year high at 12,876 on May 2nd.
  • At ValuEngine we have described the stock market as overvalued fundamentally and overbought technically.
  • At the February 18th highs we issued a ValuEngine Valuation Warning with more than 65% of all stocks being overvalued and with all sixteen sectors overvalued.
  • On May 2nd the stock market was under a ValuEngine Valuation Watch with 60% to 65% of all stocks overvalued and with all sixteen sectors overvalued.
 
The reversal-oriented trading we have been seeing from market extremes for Comex gold, Nymex crude oil, the euro versus the dollar and the major equity averages is a warning of a major change in direction for these markets.
  • A close this week for the Dow Industrial Average below its five-week modified moving average at 12,461 shifts the weekly chart profile to negative. My annual value level is the downside at 11,491.
  • Even though the May 2nd highs were above the February 18th highs I would say that confirming negative weekly charts also confirms a double-top.
 
10-Year Note – (3.149) Weekly, Monthly, annual and quarterly value levels are 3.407, 3.757, 3.796 and 4.016 with daily, annual, and semiannual risky levels at 3.120, 2.690, 2.441, and 2.322.
 
Courtesy of Thomson / Reuters
 
Comex Gold – ($1491.6) Daily, semiannual and annual value levels are $1479.0, $1452.6 and $1356.5 with quarterly, weekly and monthly risky levels at $1523.1, $1551.0 and $1589.3.
 
Courtesy of Thomson / Reuters
 
Nymex Crude Oil ($97.04) Daily and semiannual value levels are $89.95 and $87.52 with annual pivots at $99.91 and $101.92, and semiannual, weekly, monthly and quarterly risky levels at $107.14, $111.67, $119.17 and $120.52.
 
 
Courtesy of Thomson / Reuters
 
The Euro – (1.4175) My daily value level is 1.3731 with a quarterly pivot at 1.4308, and weekly, quarterly and monthly risky levels at 1.4516, 1.4624 and 1.5144.
 
Courtesy of Thomson / Reuters
 
Daily Dow: (12,548)My annual value level is 11,491 with a daily pivot at 12,540, and weekly, monthly, quarterly and annual risky levels at 13,134, 13,663, 13,774 and 13,890.
 
Courtesy of Thomson / Reuters
 
S&P 500 (1329.5) My daily pivot is 1334.1 with the May 2nd high at 1370.58. A close this week below the five-week modified moving average at 1332.1 shifts the weekly chart profile to negative.
 
NASDAQ (2782) The five-week simple moving average is 2803 with a daily risky level at 2829 and the May 2nd high at 2887.75. A close this week below 2803 shifts the weekly chart profile to negative.
 
NASDAQ 100 (NDX) (2338) The five-week modified moving average is 2356 with a daily risky level at 2372 and the May 2nd high at 2417.83. A close this week below 2356 shifts the weekly chart profile to negative.     
 
Dow Transports (5372) The five-week modified moving average is 5333 with a daily risky level at 5488 and the May 2nd high at 5565.78. A close this week below 5333 shifts the weekly chart profile to negative.
 
Russell 2000 (822.91) The five-week modified moving average is 835.67 with a daily risky level at 840.65 and the May 2nd high at 868.57. A close this week below 835.67 shifts the weekly chart profile to negative.
 
The SOX– (434.69) The five-week modified moving average is 441.70 with a daily risky level at 445.14. A close this week below 441.70 shifts the weekly chart profile to negative.
 
Richard Suttmeier Speaking Event – The Executive Forum at the National Arts Club in NYC
 
I will be discussing why “The Great Credit Crunch” continues. The event is on Tuesday, May 17th at The National Arts Club, 15 Gramercy Park South (E. 20th St.) Cocktails 5:45 PM, Dinner 6:30 PM, Presentation 7:30 PM. Use this link to register - http://www.execforumnyu.org/events.html
 
Definition of MOJO – This is my term for technical momentum. I use what’s called “12x3x3 slow stochastic readings” from daily, weekly and monthly charts. The scale is zero to 10.0 where above 8.0 is overbought and below 2.0 is oversold.
 
Richard Suttmeier
Chief Market Strategist
ValuEngine.com
(800) 381-5576
 
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As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the ValuTrader Model Portfolio newsletter. You can go to http://www.valuengine.com/nl/mainnl to review sample issues and find out more about my research.
 
“I Hold No Positions in the Stocks I Cover.”