By John Reizner |
The stock market may continue to rise - but realizing partial profits at the present time and in the manner described below may be a way to protect your portfolio from a correction and enrich your emergency kitty. In this article, I describe price ranges on the Dow Jones futures continuation chart which may be levels to consider for such investment actions. The Dow Jones closed at 10,038 on the continuation chart on October 22, 2009.
The widely watched 50% Fibonacci retracement level from the October 2008 - March 2009 decline rests at 10,363 on the Dow chart. This may be the first line of resistance for the stock market rally continuing into October 2009, one that may be exceeded in my opinion. The next bands of resistance appear around the 11,129 range on the daily chart and between bands of resistance of 11,899-13,045 on the weekly chart (editor's note: charts will very soon be featured here on a regular basis).
But more importantly, the target range of an inverse head and shoulders pattern on the weekly chart rests at approximately 11,490. The 0.618% retracement level also rests at 11,272. Both of these ranges are near the daily resistance range mentioned in the preceding paragraph.
I may take some profits in equities should the Dow rise between 11,129 - 11,490 including intraday price action. Should the general market continue to rise from that band to the higher weekly band of 11,899 -13,045 on the continuation chart, I may take more profits.
As I have stated before (see related articles below), the long view is best when considering equities. We have just endured a huge stock market crash and credit contraction. Unprecedented government spending by way of our national credit card and Ben Bernanke's monetary ease are giving the financial markets a good ride now.
These policies may produce higher inflation down the road. Should a future Fed exit strategy "cool off" the economy, the stock market may suffer. I do not believe the authorities will exit from monetary ease if the economy takes another dive. The dollar could continue to fall and stocks may rise as more and more money is printed.
On the other hand, if the economy does reasonably well, the stock market may remain fairly buoyant, though it may experience corrections of 25-30% such as we experienced after the dramatic 22 month 76% rise in the stock market from the 1974 bottom in equities.
I have sold stock in the month of October. I am considering whether to sell a portion of my non-inflation hedge positions should the scenario described in this article occur. I currently maintain positions in various oil and gas industry companies, other equities, domestic and international stock funds, agricultural, natural gas, and silver ETF's, the Franklin Templeton Hard Currency Fund, gold and silver.