The major market indices indicate that a short-term rally is due.
Our internal indicators, chiefly the Moving Average Convergence/Divergence (MACD) and momentum, are oversold, and the stochastic has issued a short-term buy signal.
Additionally the sentiment indicators, chiefly Investors Intelligence, the American Association of Individual Investors' (AAII) sentiment survey, which has been very bearish for three weeks, and the CBOE Volatility Index (VIX), tell us that the public is bearish and insiders are bullish.
Even though the trading targets could be as close as Dow 8,500, they could also extend to the top of the three-month trading range at Dow 9,300. This may seem like just more of the same type of sideways trading that we've become used to, but it could also mean that a major market base has formed.
If that's the case, the tops at Dow 9,600 could be penetrated and a major rally with an objective of 10,500 (the 200-day moving average) is possible.
The important message is this: A near-term penetration of the market low is now unlikely. It is time to begin rebuilding long-term portfolios with the highest-quality, most capable long-term equities.
Yum! Brands (NYSE: YUM) is one such stock, and it's my trade of the day.
Sam Collins is a contributor to OptionsZone.com.
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