FSU Editorial: "Fed Rally - Buy, Hold or Sell?" by James West 07/02/2006

FED RALLY - BUY, HOLD OR SELL?
by James West
buythebottom.com
forever a student of the markets
July 2, 2006

Broad Markets

COT data was little changed from last week in the major indexes:

S&P 500: http://buythebottom.com/spx.html
Russell 2000: http://buythebottom.com/rut.html
NASDAQ 100: http://buythebottom.com/ndx.html
Dow Jones: http://buythebottom.com/indu.html

However, this most recent COT data, reports up until Tuesday, meaning Wednesday through Friday will only be published in next week’s report. It will be very critical to see how the commercials reacted to this ‘FED” rally.

Did they buy the rally or did they sell into strength? Well, commercials naturally like to sell into strength and buy on weakness. But, I will give the rally the benefit of the doubt for now. On the chart above, I marked 1245 – 1255; I will call this level FED RALLY Support. If the market is above this level, I am short-term bullish on stocks, and if the market breaks below this level I am going to reverse my position and become short-term bearish.

FED RALLY Support Levels (for the rest of the indexes)

S&P 500: 1245 – 1255
Russell 2000: 688 – 695
Dow Jones: 10 980 – 11 040
Nasdaq 100: 1540 – 1545

Thus far, none of this changes my longer term view-point: I am still a BEAR.

Gold - http://buythebottom.com/gold.html

It looks like the summer gold rally is underway. Gold broke above its downtrend at 590 – 600, and as long as it stays above this level, I am bullish on anything gold-related.

Oil - http://buythebottom.com/wtic.html

In the months of May and June, commercials turned bullish on oil on a relative basis. However, this market is not quite done setting up. I think we may see some strength in the near future, but optimally I would like to see the yellow line break the white down-trend line before I turn all out bullish on crude. And in order to see that happen, crude oil will probably need to continue trading in its 68 – 75 dollar range. Another possibility is a quick dip to its 200 day moving average at $65. Any break above $75, while commercial net-position is negative, will probably fail.

The big picture for commodities is still very much intact. We are in a bull market, not a bubble like some jokers claim; hence I remain a buyer of any weakness/pullbacks in this sector.

Enjoy your holiday weekend everyone,

James

Updated weekly COT charts can be found @ www.buythebottom.com

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CONTACT INFORMATION
James West
www.buythebottom.com
Toronto, Ontario, Canada
Email: westjam @ gmail.com (Remove the space before and after @ when sending your email)

The opinions of FSU contributors do not necessarily reflect those of Financial Sense