Sunday, November 7, 2010

Weekly review

Before this week, a lot of people were saying that the election results were already "baked into" the market. A look at the weekly Dow chart below shows pretty convincingly that if the results were baked in then someone forgot to turn on the oven.
Last week was the best in what is now a ten week rally. The climb to a weekly close of 11,444.08 brings us right to the upper RTC line. This in itself is bullish. Even more importantly, look at the volume. The great Dr. Brett Steenbarger always made a big point of paying attention to volume to determine the significance of any given move. We see that last week's volume was not only higher that the previous week, but in fact the highest since the start of the rally on August 31st.

Compare this to the April rally, which ended on a large green candle, but with diminished volume compare to the preceding week. Although the indicators such as RSI and stochastic are looking overbought right now, I don't think we've seen the end of this rally. Also note how in April, the rally ran out of gas shortly after crossing above the 200 week MA, but this time we handily motored past it without looking back, and broke through the resistance of the April highs. We now stand at a level of the "summer shelf" way back in 2008. This ought to provide some resistance but right now I think the market will continue to drift higher into the end of the year.

As The Stock Trader's Almanac points out, November ranks as the second best month of the year on the Dow and Nasdaq since 1950, and the third best in the Dow. Accordingly, I'm not looking for any major downturn in the coming week. Indeed it would take four consecutive days of sideways action just to bring us to the lower RTC line to even begin a bearish setup.


Last week was one of my better weeks this year. I ended the week up 4.03% for a YTD gain of 26.72%. This puts me on track for a full year return of 38.45% which is slightly better than last year when I ended up 35%. The Dow meanwhile is up 9.74% YTD, so we're not doing too badly. In fact, at Friday's close, my trading account was at a YTD and 52 week high.

Thanks to the recent gains in the market, I am now just 3% in cash, not counting the bond redemptions over the last few months. With those, I'm just under 50% cash. I haven't found anything sufficiently compelling yet to put all that money to work.

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