After massive losses, I wrote that a stock market rally was in the cards and we got that today with a minor move higher in the Dow and S&P 500, and a much better recovery in the badly beaten up Nasdaq and Russell 2000....home to 99% of internet/biotech stocks that have been hit with 20-30% losses over the last 2-4 weeks.
In a perfect world we would have had a sharp move lower at the open today, and the VRA would have recommended the purchase of 1-2 investments that were timed perfectly for short term gains of 30-50% plus. And, while it's a near term positive that the markets halted their recent destruction, the kind of trading that we saw today is NOT indicative of a final bottom being in place. Instead, it's much more likely that we will see at least one more round of focused selling that takes the market lower...at least that's the trend that I have witnessed throughout my 30 years of observing the markets. Bottom line; buying either stocks or call options on stocks/indices right now is almost certainly going to be a mistake...at least from everything that the VRA System sees happening as of now.
Remember my warnings from a month ago? I wrote (consistently) that we should closely watch the market leaders...momentum stocks like Google, Tesla, Netflix, Facebook, Amazon, etc....and that if these current day leaders began to display significant weakness that it would be a major warning sign for the overall market. This is exactly what played out....now our focus turns to the future, and again, we will watch these same leaders to get a sense of when the perfect buying opportunity presents itself once again.
In less than 2 months we have locked in gains of 175%, and the last thing we want to do is give back our profits. With this in mind, I would rather wait and be as certain as possible that a true bottom is in place before acting. Ideally, we will see a retest of recent lows...a retest that holds...and this will serve as a springboard for the next big move higher. I could be wrong...but just don't think we are there yet...and the VRA Trading System is confirming everything I've written here.
Finally, we saw another 7% move higher in our mining ETF today. As I've been expecting, the miners bounced almost exactly off of their longer term support levels...with gold and silver doing the same. Continue to buy each of these....we will see gains of several hundred percent before we sell...gains that could reach 1000% plus.
KEEP AN EYE ON GLOBAL RISKS
We are seeing a new flare up in Ukraine, with Russian protestors raising the risks of further conflict. This may not end with just Crimea...if things spread to cities like Kiev, the international community may not feel that they have any choice but to become involved militarily. Remember, Putin's poll numbers have never been higher than they are now...the taking of Crimea was a major positive for him in the eyes of the vast majority of Russians. Now, we have Obama making empty threats and warning Russia to back down. Let's hope this doesn't escalate further...for lots of reasons. Financially speaking, it could turn into a big negative for stock markets...something to keep an eye on for sure.
In addition, the sources that I trust the most when it comes to China are warning that their credit/debt/housing bubble has now burst, and that the 3 year decline in stock prices is just the beginning of what will become massive losses over the next 1-2 years. If this happens, there is little to no chance that the US markets will be immune to serious economic decline....and Europe will be hit even harder.
Maybe these risks are what’s really behind the big drop in our market leading momentum stocks. Either way, we will know soon enough. Just another reason to be patient and to protect our gains.
Until next time, thanks for reading.