WATCH: The 4 Stage Stock Market Cycle


Want to know what you should invest in right now?

By Chris Rowe October 27, 2006 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

Hi there! Quick question before I get started: Do you like the new style of the Tycoon Report? I hope you'll drop us a line to let us know.

Anyway ...

If you are wondering:

1) Which way the market is going, or 2) Where you should have your money invested, or 3) Which sector to be in

... then I think this simple article is going to help you make an easy decision by showing you a couple of charts, and what is bound to happen next.

Ever heard of the Investors Intelligence "Investor Sentiment Index"?

Well, Investors Intelligence conducts a widely followed survey of investment newsletter writers (yes, like us), recording the level of bearishness or bullishness being expressed by each editor.

This is considered to be a contrarian indicator, meaning that if we newsletter writers are overly bullish, watch out for a market meltdown. But if we are very bearish, the market is bound to turn to the upside.

Check out the recent results:

S&P 500

Investors Intelligence has just recorded the "highest level of bearishness since April 2003, and the least bullishness since August 2004.

Investors are worried about interest rates, oil not able to stay below $60.00 a barrel, a housing bubble, trade disputes with China, and the Avian flu.

We are seeing extreme bearishness, which is a sign that there is a lot of bad news already being discounted in stock prices.

If you went long stocks at either one of these points, you might have been accused of having a crystal ball stashed away in the closet.

So there is one indicator that you might consider.

And then we have the bullish argument, as Dylan talked about when he recently said:

The Bull argument is that all the economic indicators suggest the payroll data was strong enough to indicate a buoyant economy, but not so strong that Bernanke will have to raise interest rates too quickly.

To borrow from the Goldilocks analogy, the economic porridge is "just right."

As I always say, I never try to predict the direction of the general market. There are just too many variables flying around for anyone to be right on a consistent basis.

What I do for the members of The Trend Rider is I focus on what is happening today. We have a handful of indicators that we look at on a day-to-day basis, and we have a clear picture of where the money in the market is currently headed.

Now I'm going to help you participate in some pretty big profits ...

On Tuesday I recommended a trade (which shot up 20% the very next day) that was a NO BRAINER. I'll sell it soon with a 40% gain.

Instead of telling you what the trade was (which wouldn't be fair to my subscribers), how about I show you how easy it was for me to come to my conclusion ...

80% of a stock's move has to do with which sector it is in, and the strength of the over-all sector, so that's what I focus on first.

So what you want to do is to find a sector that is in a major uptrend, that has just corrected, but is now turning around ...

Price of Crude Oil (Chart #1)

Here comes the big oil turnaround again!

This is easy to see if you have the right indicators and half a brain.

I have three quarters of a brain, and access to all of the major technical indicators that are showing the momentum coming back into Oil and Oil Service stocks, so I guess I have an edge.

Go to Yahoo Finance or BigCharts and look at the charts on VLO, CHK, SU, MUR, KCS, SUN, SNP. They all got their rear ends handed to them back in October.

Then look at a 5-year chart on all of them. Any time they went under the 200-day moving average, it was a MAJOR buying opportunity.

If your stockbroker sold your oil stocks at these recent lows, fire him/her and transfer the account to me.

ARGHH! I forgot, I'm not a money manager any longer. DOH!

But times like these were always easy pickin's for me.

Oil stocks may be volatile, but if you want to make big money, you have to play the volatile sectors. It seems lately that between November and February, oil stocks were either the best performing sector or the worst performing sector.

The major trend is always higher, and here we are looking at the very beginning of a major turnaround. If you can just find the energy companies with strong fundamentals, you will be shooting fish in a $62.00 barrel.

If you don't have the luxury of a crystal-clear picture, let me offer you some Windex on the current oil turn around:

It's a lot easier to SHOW you what I'm talking about, now that we're putting out The Tycoon Report in a new and improved style where I can add charts (thank goodness!).

Here's what's happening:

Every time crude comes off of a major bottom, AND the weekly momentum turns back to positive, oil prices and oil stocks have skyrocketed.

There are several commodities that have pushed these stock prices higher, since the industrialization of India and China require massive building (which in turn require commodities that take energy to produce).

But obviously the main commodity behind the move in these stocks has been Crude Oil.

Anyway, long story short, Crude's momentum has now turned back to positive. At the same time, with each day that passes, more and more energy stocks are turning around and showing clearer and clearer "buy-signals."

The writing is on the wall here.

Price of Crude Oil (Chart #2)

The last time Crude had positive momentum coming off of a bottom, it rallied from $56 to $69.00.

After momentum was positive for nine weeks, Crude went right back to negative momentum in February. In this recent (healthy) correction, Crude oil managed to stay above its November lows.

Now that momentum has flipped back to positive, it's time to put on your seatbelt.

Since 1999, but especially since 2002, Crude has constantly moved to new highs. It all started when oil was at $10.00/barrel in 1998 and the major oil companies under-invested in oil exploration because the profit margins were too small.

Since 2002, oil has been on a tear.

Fast forward to 2005. I remember when analysts were calling the top in Crude prices at $45.00/barrel in the beginning of 2005.

If technical analysis just isn't your thing, just take a look at the short-term fundamental picture:

The Energy Department just reported that crude inventories fell 1.3 million barrels to 338.6 million barrels for the week ended March 17.

The market expectations were for an increase in stocks.

The decline was the first fall for crude supplies since the week ended Feb. 3, according to government data (which is obviously when the oil stocks started getting hammered).

A report from tanker tracker Petrologistics on Wednesday anticipated a decline in OPEC production in March.

OPEC's expected to pump 29.7 million barrels a day of crude in March, a drop of 350,000 barrels a day on the revised total for February as supplies from Iraq and other countries continue to disappoint.

New supply disruptions, coupled with weather-related production disruptions in Russia/FSU [former Soviet Union], will also continue to weigh on markets.

Here's Your "Take-Away" from this Article ...

The fundamentals of the energy market are great, and demand continues to outweigh supply.

The sabotage of Iraqi pipelines, OPEC's threatened cuts, and of course political instability, will help push these stocks higher.

If you don't get into energy in times like these, when do you get in?

I hope that you all get paid this time around. This is not technology in 2000! You have a picture that's this clear only a couple of times a year.

Take advantage and ride the trend!!

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