Huge Rally Ahead?
Research for Online Investors

by John Dalt

9/23/11

We breathed a sigh of relief yesterday as the S&P bounced off 1114 and turned higher to close at 1129.  Asian markets opened last night, and were not convinced, they headed lower.  European markets opened and pushed lower.  Our futures markets wanted to continue the rally from Thursday, but were eventually overcome by the “feed in” from overseas.

What do you do when all around you are losing their heads?  Offer yours?  Gold and silver looked like the “General Lee” from the 1970’s TV show heading off a cliff, into a barn or off a curve.

Precious metals careened yesterday, they pulled an “Oh, My God!” act today.  Commentators said it was the worst action in gold since 1983!  Historical.

Back to stocks, yes it was a relief yesterday to bounce off the bottom and close higher.  Here is the chart.

This looks pretty good.  The market dipped just below good support but recovered and closed above the 1120 level.  So far so good.

On 8/22/11 in our MarketToday article “Transports Leading Indicator” we discussed the concept of Dow Theory.  Transports are a leading indicator of future economic growth.  If a business sells a product, it has to be transported.  If the transportation sector is concerned about future shipments; that would tell us economic activity may be slowing down.  Transports punched below support yesterday to set new lows.  Transports are trading below 4208 (solid line) today.

One of the tenants of technical analysis is that once support is broken, the support line then becomes resistance.  Looking at the market through this lens tells us transports have to break above 4208 and hold it or the general market is still in danger.

We have a small rally going today.  Probably a continuation of the short covering we saw in the last hour yesterday.  But watch the transports, $DJT or $TRANS depending on your desktop program.

This will give you an advance look at where the market is headed.

Watch for resolution of the “Greek problem” in the eurozone.  Successful negotiations to give them money and kick the can down the road should key a world-wide rally in stocks.  Also, concern about China’s economy has elevated fear.

The world needs the Chinese economy to fuel economic growth.  The Flash PMI last night showed growth slowing in China for the third straight month.  This is what the ChiComs want.  They need to slow the growth to control inflation.  Slowing growth in China means 8% rather than 11% growth.  That distinction seems to be lost in the fear that is gripping the market.

There is a huge rally waiting for us.

We just don’t know the road we will have to travel before we find it.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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