After hashing through all of the technical projections from the various market technicians that we follow, the question that keeps coming to mind is, "is it worth it?".
Lets look at some technical market numbers, while keeping in mind that the market will probably revert back to its bear market ways in 2006.
S&P:
The technical projections are currently forecasting a rally to the mid 1300 level on the S&P. While 1325 sounds pretty good, the gain would only be 5.1% from current levels.
We have seen some forecasts that could carry the S&P to euphoric levels (1350/ +7.1%), but we need to keep in mind that every projection is just an educated guess.
In my opinion, the risks of staying in the market for the possibility of an extra 5-7% is not worth it. I would rather split the difference and buy a 4-4.25% cd.
If I absolutely had to gamble on a rally, I would buy the SPY, or SPX calls 3-4 months out on a pullback.
DJIA:
The techical projections on the Dow are currently forecasting a rally to the 11,500 level (+5.5%), with a possible top at 11,900 (+9.1%).
The possibility of 9% is pretty tempting. Again, if I absolutely had to play the possibility of this rally, I would buy the DIA Diamonds, or buy a 3-4 month call on the DJI on a pullback.
If you would rather sit this one out, again 4%+ cds sounds pretty good.
NASDAQ:
Believe it or not, this is the index with the best risk reward senario. Peter Lee from UBS believes that the NASDAQ's "longer term weekly chart has formed a multi-year head and shoulders base (cup&handle)". He also believes the "technical targets for the index are well north of 3000".
This being said, we would take a longer term view when investing in the NASDAQ, and would own the QQQQ through most of any bear market cycle, or until the 3000+ level is reached.
