INVESTING: It’s a tricky market, but opportunities to profit remain

A lot of people were hoping for, and found, a year-end rally. I said in late October that the S&P 500 might hit a new rally high, but after that selling would come.

Now that we are at that point, I see more upside potential. I am not changing my view that, in the big picture, stocks will be in for a rough ride next year. But the market could go higher than I expected before major selling takes over.

There are a couple of things that make this market a bit tricky to play. Every week, we witness an increasing number of signs that point to a somewhat-nearterm end to the bull market that began in March 2003.

I do not possess the tools or ability to discern the exact day the market will top. However, I do know that as we get closer, fewer stocks will be participating, even as the indexes themselves hum to new highs (exactly the type of behavior we have seen the last few weeks).

The last push of a bull market is often spectacular. But because we don’t know when the final top will arrive, investors should proceed with caution.

On the negative side, long-term indicators continue to show slowly deteriorating internal conditions. Retail stocks began their bear market several months ago. They rallied a bit in November, when the rest of the market was strong, but have since reverted to their bearish behavior.

The S&P 500 broke out to a high again on Nov. 18, and has hit more highs since. It’s pretty easy to find large chunks of the market that aren’t hitting new highs this time around, though. (If you don’t believe me, check your own portfolio. If you aren’t up at least 10 percent so far this year, you have a problem).

There are some positives to the market right now, though, and it is these strengths that lead me to believe the S&P 500 has the potential to top 1,300, rather than losing steam at 1,270.

One positive is the strength within the Nasdaq 100, the largest 100 stocks in the Nasdaq index. A month ago, this index broke out of a consolidation period dating to January 2004.

It did this in the midst of seven straight advancing weeks. While a lot of smaller Nasdaq stocks have not performed that well, big stocks in the index have a lot of potential near term.

Japan is still showing great strength. A lot of foreign markets have not kept pace with the U.S. market since the October bottom, but Japan has been a stalwart, and it looks as if there’s more upside in the weeks ahead. Another strong overseas area is Latin America. These markets have been doing well all year, and the up trend there is still in place.

The next eight weeks could go something like this: A brief, 2-percent-to-3-percent correction over the next few days, followed by a year-end rally that includes a big move by tech stocks.

The market may hover around those highs in January before selling takes over. And that selling may stay with us for some time.



Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at keenan@samexcapital.com.

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