Is This Turnaround Tuesday… Again?

Everything I wrote in last Tuesday’s edition applies for today as well… only more so.

 

Last Tuesday, the setup for a bounce in technology shares was nearly perfect. If you bought into the morning weakness, as we suggested, then you were sitting on a 3% gain by the afternoon.

 

Today, the short-term setup is the same… only better.

 

Notice, on the following chart, how the semiconductor index has fallen right back down to its downside support line:
 

 

Investors are still overwhelmingly bearish on technology shares. Short interest for the sector is at record highs. And, asset levels in technology mutual funds continue to drop.

 

Like I said the setup is the same as last week.

 

What makes it even better this week, however, is we have two potential catalysts to kick start this market in the bullish direction.

 

First off, Fed Chairman Bernanke is speaking in front of the House and Senate Finance Committees on Wednesday and Thursday.

 

Given the insecurity in the markets brought on by all the geopolitical concerns, Chairman Ben is unlikely to say anything that creates additional worries. In fact, it’s much more likely that he’ll “talk up” the markets.

 

But the event most likely to fire off the ignition switch to a sustainable rally occurs on Wednesday afternoon.

 

Intel (INTC) announces earnings after the market closes on Wednesday. With the stock sitting just above its 52-week low, investors are apparently discounting the worst of all possible outcomes. And that’s what sets the stage for a potential upside surprise.

 

So… just as I wrote last week, there are no guarantees in the stock market. But conditions are nearly perfect for setting up a rally. We have extremely bearish investor sentiment, record short interest in the technology sector, and a couple of potential catalysts to kick start a move higher.

 

I’ll be buying into any weakness this morning. You might want to consider doing the same.

 

Best Regards & Good Trading,

 

Jeff

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