Is It a Good Time to Buy ?
Well, well, the euro rallied today. Is that because China came out and endorsed the European Union's efforts to contain its debt problems? Or should we assume that traders are simply lightening up on their positions as 2010 winds down.
I'll take option #2. I'll also take the upside we're seeing in the stock market today.
The S&P 500 is moving above resistance at 1,250 today. That opens the door for more upside to end the year.
*****Is this the right time to buy stocks? Of course the answer depends on a few things.
If you scale into positions, that is, if you buy stock in small lots at regular intervals as you build a position in a stock, the yes, absolutely, there's no reason to halt your purchases just because the S&P 500 is tussling with an important technical level.
However, if you are just starting to build a position, or have end of year bonus money to put to work, I would suggest that you tread lightly and pick you sectors carefully.
As much as I like oil stocks, they may be a bit stretched right now. Oil prices have been pushing $90 for a few weeks now. And we are likely near a seasonal high for oil, as oil prices tend to put in a high in January-February and again in summer.
Commodities are also hitting levels where I would be cautious. Still, I want to emphasize that the long-term trends for oil and other commodities remain intact as the global economy recovers.
*****On the other hand, many technology stocks still look cheap to me. And so do the financials.
Let's not forget that the banks face another round of stress tests to determine if they are healthy enough to start paying dividend again.
This is clearly an important issue for banks. And there's no doubt that recent asset sales by Bank of America (NYSE:BAC) were carried out to ensure that its balance sheet will be as strong as possible.
2011 could be a very good year for banks. It's likely the banks get more clarity about the value of the toxic mortgage assets they hold. I know I'm probably the only one saying it, but these toxic assets could prove to be quite bullish for bank valuations.
