Don't Buy It..

We had a nice looking rally on Friday. The major averages either jumped above or are near close to their 50 day moving averages. While the technicals are beginning to look better, the fundamentals underpinning this recent rally leave a LOT to be desired. The rally on Friday came from the thought that the government stimulus package will be passed. It didn't come from those things that we used to value like earnings, profit growth, prosperity, etc. Remember those?

When we rally because the government is going to redistribute funds in a way that is supposedly going to stimulate the economy, I don't get all that excited. It usually becomes a time to trim some profits.

It looks like we have seen a short term turn in the dollar. We are seeing some weakness against most currencies right now and it is supportive of the market. Remember, the market was at an all time high in Oct 2007, at that time we saw EUR/USD in the 1.40 - 1.45 range. We are now a little over 1.30. It doesn't seem like much right now but 15 points can mean a huge difference.

I could argue that we will come out of this (except for the financials, of course) stronger than we had been before. The last rally to above 14k in the Dow was fueled by almost solely by commodities and commodity stocks. The next time we head higher with commodity stocks because of the weak dollar, we will have strong-balance sheet companies like tech going with it. That will lead to a more broad based rally and more strength overall.

Until then, continue to invest in the overall trend of the market. The trend continues to be a weak dollar and more inflation. Another good way to play this is the (TIP) which is a Barclays ETF that tracks Inflation Protected Securities in the Treasury market. This is a nice way to take advantage of the fact that we will see some pretty hefty inflation down the road. Running out and buying it today will be a little early. We still have some deflationary pressures in the economy. But 2-3 years from now, you'll be kicking yourself if you are not selectively buying this soon. Until next time, stay low risk..