The stock market should turn up and start to rally next week. Here’s why:
We are Oversold
The Overbought Oversold Oscillator is pointing Oversold. This reading works like a heart monitor, bouncing backand forth. The image above is as of yesterday. The short term bottom was put in two days ago. From the looks of this chart, we are prettoy oversold — and due for a bounce.
It’s amazing how well the Oscillator works.
We Need to Get Paid
Mutual fund managers, hedge fund managers, portfolio managers like myself — we get paid on assets under managment (in most cases). The higher the asset base the more our income.
The quarter started off good with the S&P closing at 1364 in April (+3%), then fell in May (-1) and is now down big in June (-6%). This correction has taken 4% off the S&P 500 so far this quarter (1326 to 1271). The market’s still up 1% year-to-date. Funny how there’s doom-and-gloom on the news yet the market is up on the year. You’d think a 2008 crash was taking place. Its not, the market is up this year.
For money managers, we look at the quarter. Down 4% means our paychecks might not be as good as last quarter’s. It’s time we banded together to get this party started. I know it sounds crazy but if a rally starts you could see a big push to put money to work — to push stocks up by the end of the quarter.
Check the Top Holdings
Another reason I think we will rally is the top stocks are depressed. Money managers often show what their top ten holdings were at quarter end. If the top stocks are leaders for the year, then clients will give the managers a pat on the back for having a big position in a hot stock. Little do the clients know when the stock was purchased — it just has to show up at the top of the report on June 30th.
So I think the 2011 hot stocks will get bought dring the next two weeks. This will push the market into a rally and get people excited. Investors will look to get back in and money managers will buy more of these hot stocks. That’s how I see June ending in rally mode.
