So Far This Doesn't Look Like a Top

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The S&P 500 broke through its 200-day moving average yesterday following the Nasdaq's successful breakout last week. The Dow only managed to pierce this line and then it bounced down. If all the averages can break through and hold above the 200, this rally will continue to have legs. The next key test will be if the 50-day moving averages can cross the 200 days. This is the classical confirmation that a bull market has begun. This is at least a couple of weeks off. A failed cross of the 50-day is not out of the question, so we will have to wait and see. Oil continued its impressive rally yesterday, rising for the 6th day in the row. Rallies like the one we are currently seeing should make you start to think of selling if you got in at the bottom. It all depends on the technical picture of course and your investing time horizon.

I sold Nova Gold (NG) this morning because it had gone up too far, too fast. The price was way above the 10-day moving average (use 20% above as a rule of thumb for overextension) and the RSI had gone above 80 on the daily charts and had stayed at the level for several days (this is mega-bullish blow off behavior and is not sustainable). On the other hand, Harry Winston (HWD) just broke and closed above its 200-day moving average yesterday, which indicates a likely continuation of its bullish pattern. It is not overextended from its 10-day, so I am willing to keep it for the moment.

Many oil stocks are getting overdone however. The rally which has taken place since the beginning of last week has taken oil up quite a bit in a short period of time. At this point, it looks like the resistance around 70 could cause a temporary sell off before a further rise to the 75-78 area. I might be taking some profits today or Wednesday morning with the intention of buying back lower. For investors who can't pay attention to the market closely, it is best to leave well enough alone until oil gets into the mid 70s. Even then, I think higher highs will be in store for oil during the summer.

One thing I have been accumulating is Natural Gas (UNG). Gas can rally into the October/ November time frame and there is potentially a lot of profit to be made there, since it is barely off of its bottom. I have held onto all of my silver, which is around its resistance of 16 today. Gold is pushing for the key 1000 level. I have no intention of selling any of it until the breakout and move up to around 1200 level. Watch the trade-weighted dollar. It is in the high 78's right now and a breakdown below 78 will be bullish for all commodities and will definitely set off the gold rally.

NEXT: Market at Key Juncture

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.