Stocks Are Still in an Up Trend

09/30/2009 11:22 am EST

Focus: MARKETS

Mark Leibovit

Chief Market Strategist, VRTrader.com

Mark Leibovit, chief market strategist for VRTrader.com, says the recent sell-off was weak, and he gives several reasons why stocks are likely to move higher over the coming weeks.

Stocks soared Monday, posting solid gains even as volume came in at its lowest total in a month. For the session, the Dow Jones Industrial Average was up 124.17 at 9789.36, the Standard & Poor’s 500 was up 18.60 at 1062.98, and the Nasdaq Composite index was up 39.82 at 2130.74.

The indices bounced back from their worst weekly loss since July with solid gains, but volume was downright weak, [although] breadth was strong. This move could continue higher as light volume has been the hallmark of this rally off of the March low. (Markets sold off a bit on Tuesday—Editor.)

We are likely setting up for another rally this coming week. Why? Well, Yom Kippur [ended] Monday night; Tuesday [was] “Turnaround Tuesday”; end- of-the-month “window dressing” should get underway; new 401(k) funds come in on October 1st, and all the geniuses out there are telling you that we’re on the verge of experiencing a market “crash.” These are the same geniuses who were predicting a negative September. Of course, a broken clock is right twice a day and eventually they are going to be right.

Take a look at this link: You are looking at two rising channels for the cash S&P 500 (SPX)—one from the March low and one from the September low. We broke down out of the September channel, which triggered the current correction from 1080 to 1041. The bigger channel, however, shows support around 1005-1010 in the SPX. We could, in theory, be headed down there, but remember, it’s a rising channel and the upper end of that channel is so high that you need a step ladder to see the top!

There is too much uninvested cash out there. How long will investors and money managers be satisfied earning a 0.25% on their money market accounts? Not long!

Take a look at this link: I showed this on my Nightly Business Report interview last Friday. It clearly shows a huge reverse “head and shoulders” pattern in the Dow Industrials pointing to potentially 11,500. This is the potential whether it’s straight away from current levels or after a pullback to the lower end of the rising channel mentioned above, i.e., approximately 9300-9400 (the rough approximation for 1001-1010 in the SPX).

We will know in the fullness of time, but I am remaining on my Timer Digest Buy signal. Friday's selling definitely lacked conviction, as we are once again seeing selling pressure fade as prices push lower. Since the March low, sellers have had no conviction and so far this [recent] sell off looks no different.

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