Market Radar: Rising Prices to Year End

Sunday, October 17, 2010

By Bill Sarubbi

The stock market has continued to exceed expectations. At this point, I expect rising prices to the year end.

As mentioned last time, the midterm election year cycle has likely bottomed. And the month of October has seen more lows than any other month.

The Republicans are likely to gain seats in the US election, but I suspect that independent candidates will take many votes away from them. This may leave power divided so that no one can take firm action.

Stock market studies show that the market has its best gains when no one party controls both the White House and the Congress. And, market returns are higher when Congress is out of session. There is no one who can get in the way of profit-minded entrepreneurs. This may be what the stock market is telling us.

Here are some stock individual recommendations:

Baxter International (BAX on the NYSE) through its subsidiaries, develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. BAX is due to report earnings in the 3rd week of the month, likely on the 21st. An earnings disappointment is expected. Sell BAX or go short.

Crane Co. (CR-NYSE) manufactures engineered industrial products. CR is due to report around the 25th, but the announcement is likely to be met with selling.

For those who seek a longer-term investment, IBM is attractive. The stock has broken out on a monthly graph above resistance at 130. The stock counts much higher, has support at 130, and closed at 134. This is an good reward/risk ratio. Buy Big Blue here.


Two weeks ago, I wrote, "Oil is trapped in a trading range. The top of the range is now $82, which is now resistance. I doubt that oil will break out of the range now. It is entering the weak part of its cycle, September 29-December 11 during which oil has fallen 71% of the time for an average decline of 10%. The cycle composite turns down on October 3rd, so it is likely that oil will drift to the lower end of its range from this point."

Oil stopped rising at $84. The weekly graph is now overbought, so oil is likely to pull back to the high 70s.


The last column stated, "Looking at the technical picture, gold has broken out of the ascending triangle as expected. It has not yet hit its objective in the $1350-$1450 range. I expect this to occur by mid month at the latest. Looking at the annual cycle, the second half of October is the single weakest period of the year for gold prices."

Gold closed at $1371 on the 15th. The metal may pull back to $1325, but this will be an opportunity to add to holdings. I do not recommend shorting this strong market! November is usually strong for gold prices, so I would look for higher prices by the end of November, likely in the $1425-$1450 range.

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