Market surge is imminent, take profits but do not short!

Well the great news yesterday was that the MACD for the S&P broke through to positive territory. The MACD currently is the re-spiral method’s signal for when the current rally will be over and when we should be on the short side of the market. We would be hesitant to short the market at this time unless specific stocks in certain sectors get highly over bought. The re-spiral window for getting out of this rally is almost three weeks farther to go and the chances of this opportunity opening a lot farther grew enormously yesterday. So we can go back to cherry picking by setting exit levels at least as high as the stocks high in the past month or two.

Last night China was up 4%, Hong Kong was up 3.6%, Japan was up 1.6% and India was up 2.3%.

Today European markets are up an average of 0.6% waiting to see if the American markets surge higher today.

American market futures are slightly positive at this early hour.

On February 9, U.S. Treasury Secretary Timothy Geithner’s team will decide if American banks can survive or if America will need to nationalize them including Bank of America. One strategy to aid America’s banks will likely be guarantees of toxic assets by creating a so-called aggregator bank just for the toxic waste. That “Toxic Bank of America” could very well be highly profitable after a few years of inflation provided we do not pay too much for the toxic waste. It is likely that this action will cause a stock market upward explosion. On the other hand if Geithner’s plan is nationalization I believe he will ultimately be thrown out and forever be regarded as toxic waste himself. This decision on Feb 9 could be the spark that sets off the short squeeze that sends stocks through the roof.

There is a tendency in the market for everyone to pile on to a particular stock and Jim Cramer is a leading advocate of that method of selecting stocks. That is why they are all piling into Wall-Mart right now. For that reason I would not touch Wall Mart right now. A few months ago Jim Cramer said his charitable trust was buying NAT but a very similar company, DSX, was up 45% when I sold the other day and NAT is still down from when Jim Cramer recommended it. Why? Jim Cramer seemed depressed and said the problem with the dry ships is they have too much debt. Yet NAT has no long term debt and very little short term debt.

I personally will not publicly say what I buy or sell short nor would I even give that away by making specific stock recommendations because there are people who have sufficient resources to pound you down if they do not like you. One analyst downgraded NAT after Jim recommended it... possibly because the analyst did not like Jim because it looks like in this case Jim makes sense and the analyst did not. How could Jim call it best-of-breed and the analyst finds it worst-of-breed for twin sister stocks in the same sector? It is possible because emotional decisions are often illogical. Neither Jim, that opposing analyst, nor anyone else knows tomorrow’s best selection. They have based their selections on what most people said was valuable in the past and their advice may not be on the mark. Investors have to look themselves for the best opportunity because after a run up that shooting star stock could have transformed from best of breed to worst of breed. That contradicting analyst may actually dislike Jim and be letting emotion rather than reason govern his downgrade decision.

We recommend watching one's portfolios carefully to use these rallies wisely to reduce holdings when you show 40+% profit peaks. After Feb 9 we will have a better idea of the market strength. Remember that the re-spiral had its window of short holding transition to covering and buying long from Nov 6 to Dec 5, 2008. The long holding window transition to selling out and then selling short is what is open now. Obviously you do not want to short this market until the very end! If you short you need to wait until this window is about closed or else you could be caught in a short squeeze yourself!

Good luck on your investment journey.