On Tuesday the stock market did manage to start to rally as I mentioned yesterday morning that it oversold, but for how long? I do not think this is a great time to invest in the stock market as it went up so much into this Labor Day over the past five months. That doesn’t mean there aren’t good things to invest in. I like gold, silver, mining stocks and select commodities people in my private Power Investor group know about.
The best time to invest in something is when it is at the end of a stage one basing phase or just starting a stage two bull market. There are few things in either category now. That’s why if you buy the S&P 500 or TSLA as an investment you end up trying to jump in and out and trading it instead.
The second best time to invest or by anything is when the stock market is going through a correction and you reach a panic phase end it to. Once that happens you look to see what holds up the best during the end of the decline as typically those sectors and stocks then become big leaders on the next rally.
But to do any of these things you MUST think ahead. You must have an idea of what is happening in the sectors and what you could be buying later or else you will only react to day to day gyrations and end up trading something silly like Tesla or Bitcoin.
Tesla was supposed to go up on “battery day” according to Twitter traders, but it fell 5% on Tuesday instead and traded down 6% in after hours last night.
So what I am looking at is energy stocks – not as a buy now, but as a potential one to take as a serious investment position in the next few months. Take a look at the Energy Select Sector SPRD Fund ETF (NYESARCA: XLE) chart.
This ETF and the energy sector as a whole has been lagging for a long time. That is why the XLE/SPX relative strength ratio has been trending down all year. When the stock market fell in March the XLE fell more than the S&P 500 and this summer it rallied less than the S&P 500 did too.
In fact it is remaining below its 150 and 200-day moving averages. It’s lagging the stock market and remains in a bear market. Now is not the time to invest in it, but this condition will not last forever and that is why I am now keeping my eye on it.
The stock market looks poised to continue trade sideways to down into the election. But such a trend could turn into hard selling into the end of the year if there is an election controversy. If that happens and energy stocks were to start to hold up against the S&P 500 then I would become a big buyer.
I have to look at it now and think of that possibility today to be able to be ready to take advantage of it tomorrow when it happens – and I want you to know to keep an eye on it too. Yes I know energy demand is incredibly weak and is unlikely to pick up before the end of this year, but the day will come when oil prices go into a new bull market for real as we already are seeing some commodities start new bull markets of their own this year.
As for the stock market – my views on it remain the same as I posted about yesterday morning.
-Mike
