Too Late to Buy, Too Early to Sell

04/08/2009 12:00 pm EST

Focus: MARKETS

Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, says he expects to see a small correction this month, then the market will rally before hitting new lows later this year.

The first phase of the rally has gotten off to a decent start, but it is time for prices to cool off before moving higher. I don’t expect this correction to amount to much. It may well offer an opportunity for us to add to some of our commodity-enhanced positions, as I look for the profit taking to be broad-based.

The fact that the McClellan Oscillator (a key technical indicator—Editor) is overbought is not necessarily a signal to sell, but it is a warning: It is too late to buy anything at this point. Do not chase strength.

My bottom-line take is that we will see prices back off early this month. The rally will then catch its breath and resume.

Although I expect some minor weakness here, it is my opinion that it is too early to aggressively sell. We will suffer through this consolidation as well as a couple of additional sell offs before encountering the culmination later this summer of the “Obama rally.”

My work is pointing to some weakness again during May and a more serious correction in July. However, the rally should struggle on into late August—early September, where I look for the rally to terminate. September and October look disastrous. I believe that once the highs are in, the averages will fall to new lows.

Don’t get too anxious about weakness this month. Again, there are higher prices coming this summer. The question is, just how high? I look for the Standard & Poor’s 500 index to find support in the 740-775 zone, and then it should recover to 900 where the next serious level of overhead resistance will be. Beyond that, it is difficult to tell.

As a general recommendation, I suggest that you hold your commodity-advantaged issues and use strength this summer to liquidate issues not advantaged by higher commodity prices. Until the [ratio between the Dow Jones Industrial Average and gold] falls under five, you will find the best returns in commodity-related investments.

The ratio will likely fall under two before the commodity bull is finally over; but once under five, it will be too late to buy into the commodity bull on a long-term basis.

The ratio will not fall under five any time soon. I see another five to seven years left before the commodity bull and stock bear is over. Once we see the highs in the popular averages late this summer, the averages will fall to new lows. I would not be surprised to see the S&P 500 fall to 400 before the stock market bear is finally over. Your best opportunity to prepare for this is to sell financial/paper assets during the current rally.

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