Tape Tension Is Resolving to the Upside

• ByRon Insana, Portfolio Manager
• On 9:08 am EDT, Tuesday September 8, 2009

The question of whether the stock market will break out or break down is being resolved this morning. Despite China's continued weakness, Hong Kong shares are leading the way higher, European markets are rising, a weaker dollar is moving U.S. stocks and commodities up despite signs of being overbought, overvalued and overloved.

Kraft's $16.73 billion buyout offer of Cadbury started the week off on a solidly bullish note, as "big deals" may be a new catalyst for the market. As a consequence, I recommended some bullish trades in my "Market Movers" portfolio this morning, not wishing to fight the tape.

All manner of divergences bother me at the moment, but they mean little against this storm surge.

Lumber continues to decline despite the improvement in real estate and homebuilding stocks. The homebuilders have probably corrected enough in the short run and will likely be dragged higher in this market. Copper, despite bulging Chinese inventories, is rising sharply this morning, focused more on a weaker dollar.

While I am getting back in the game, I am doing so a tad reluctantly with some short-term trades designed to best exploit the market's newfound strength.

What gives me hope that a deeper correction may have passed us by is the bearish headline story in The Wall Street Journal that smacks of consensus thinking. As I have often said, I do not like to run with the pack, especially print journalists who run the same piece every two weeks.

I will watch for signs of rapid exhaustion in the markets, but I will stay in some trades for as long as they make money.

Staying nimble here is key. If the market gathers momentum rather than loses it, I may also re-establish positions in longer-term holdings in which I took profits a month ago.

Buzz up!