Still Thumbs Up for Stocks, Commodities

03/25/2010 11:20 am EST

Focus: MARKETS

John Bollinger

President and Founder, Bollinger Capital Management

John Bollinger, editor of Capital Growth Letter, says all the technical indicators point to a continuing rally in stocks and commodities.

The stock market remains in an up trend, much to the dismay of the nattering nabobs of negativity.

One of the first things I learned from the analyst I apprenticed with was that the most bullish thing a market can do is get overbought and stay so. Of course, the same is true for down markets, but this was the fall of 1982 and we had a very overbought market that everyone was trying to sell.

In any case, this market is going up in a fairly normal manner with very wide participation. The advance/decline lines, new highs and new lows, and those sorts of things are all confirming.

We have just completed a textbook correction of between 7% and 10% and are now working on establishing new highs—the broad market has already done so.

I simply see no market-based reasons to be bearish at present. Several potential divergences were averted, so until some bearish evidence builds up, we remain unabashed bulls.

The trend is for mid-sized and smaller stocks to do better than their larger brethren. It is not an overwhelming trend, as it sometimes can be, but smaller issues have been outperforming and you should take advantage of that as you can.

The UK’s FTSE 100 index beat the Standard & Poor’s 500 index into new high territory. That should be counted as a plus for our markets as the FTSE is a leading index in our view.

So far, the international markets are confirming, not monolithically, but they are all rising with some leading and some playing catch up. What is most important is that we haven’t any markets headed the wrong direction. A key market or two rolling over should be taken as an important early warning.

The normal calendar cycle suggests strength into mid-year, and we see no reason why that shouldn’t be the case. However, as we approach May/June, we’ll be on a heightened state of alert for the late-summer/fall cycle to assert itself in the usual way. Our plan is to take some money off the table mid-year, but that plan is entirely subject to changing market conditions. It is simply the road map we expect to use if all goes as expected.

We remain steadfastly bullish on the energy sector, on crude oil, its products, on coal, and even, eventually, on natural gas. Commodity prices remain strong and are consolidating their gains. I expect another breakout to the up side before long.

The failure of the rally at this stage would be a huge cautionary alert. On the other hand, a rally into new high territory would be another in a series of “all clear” signals for the markets.  Eventually rising commodity prices will be a problem, but not yet.

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