This sneaky three-month stock market “correction” is almost over. How do I know? Yesterday’s trading held the clue. Despite squawks and shrieks from Chicken Littles around the globe, investors seized on a wisp of hope that the Washington budget impasse might be broken–and the Dow leaped 202 points, its best session of the year to date.
“So what”, you may be thinking, “we’ve had other big up days over the past three months, and the gains haven’t lasted”.
True enough. Consider a few facts, though. The S&P 500 index (the best overall gauge of the U.S. stock market) touched an intraday low of 1258 on June 16. At the time, I called it “classic bottoming action”.
Here in July, the market has been working on a secondary test of that low. On Monday, the S&P slipped to its low for the month, 1296 (intraday).
Do the arithmetic yourself. The market has remained 38 S&P points (about 3%) above its June low, in spite of some incredibly hostile press about Greece, the debt ceiling, etc.
Yesterday, I received an e-mail blast from a well-known pessimist who proclaimed THE WORST IS YET TO COME. FIVE MEGA-SHOCKS ARE ABOUT TO DESTROY YOUR RETIREMENT. Another inveterate naysayer, who graces one of the Internet’s most-visited financial sites, just stepped forward with his latest prediction of “10 long years of no growth,” which “may morph into a 1930s-style depression.”
When the market can surge in the face of stories like these (there have been tons of them!), you know the sellers are down to their last few bullets. It may still take another three to seven sessions before the bears’ ammo gives out entirely, but the signs point to a powerful upside move for stocks in the weeks and months ahead.
What to do now? If you’ve got cash on hand that you were planning to put to work in stocks, don’t delay. It’s quite possible that, by the end of next week, the current buying opportunity will have vanished.
If you need to build a large equity position quickly, go with an exchange-traded fund like iShares Russell 1000 Growth Index (NYSE: IWF). This fund, freighted with blue chips (especially technology issues), is showing excellent strength relative to the overall market. I consider IWF a perfect trading vehicle for the next three to six months (maybe longer).
Buy IWF on a pullback to $61.76 or less.
