Enjoy the Rally and Start Buying Stocks

The rally got started with Wells Fargo (WFC) making an in-your-face pronouncement that had to put the fear of god in those doomsayers that expect the entire banking system to collapse. (For more details, check out: "Wells Fargo Turning the Tide.")

Much more important than the losses that were not as bad as expected, WFC took all the run on the bank talk and turned it on its head by raising its dividend.

Add the dividend news to Chairman Richard Kovacevich’s recent big purchases of WFC stock at prices much higher than current levels, and it all makes for a positive story.

After posting losses on July 14th not seen since November of 2007, the entire banking sector moved substantially higher during the remainder of the week. The group as a whole moved higher by more than 20% in total.

Now you understand why I stated on July 16th that the banking sector was the absolute best sector to own right now.

I am most certain that we have progressed as a society beyond the Great Depression era runs on the bank that many felt were possible today given the demise of IndyMac (IMB).

Absolute nonsense. And if you are a Rational Investor, such talk is a sure sign of opportunity. I gain a ton of confidence with the insider buying that I see, and you should too.

These bankers are not stupid. They are often very conservative individuals, and the fact that they are buying stock should provide investors with a ton of comfort.

Now, I fully expect the rally of last week to continue even if we see a slight pullback this week. Because the losses were so broad, there is still room to run even with out another move down.

Why So Positive When All Is So Negative?

That is exactly my point. The time to buy is when there is blood in the street, and early last week there was blood in the street. You could smell it.

Much has been said and written that this is no more than short covering. Short covering, really?

Wel,l how can that be when those on the bearish side keep telling us that shorts have nothing to do with stocks going lower?

Hmmm, something smells funny here.

If shorts are not to blame for stocks going lower, than there can be no way that shorts are to blame for stocks going higher. You don’t get to eat your cake and have it too, Bears!

It is interesting to note that in a hosted chat over on our sister site, InvestorPlaceBlogs, many of the participants are still firmly in bearish camp.

Obviously, I take exception with that opinion.

We have seen the bottom, and I am now getting ready for what I feel will be a rally to remember over the next 12 months.

In addition to the banking stocks, there are so many cheap stocks to choose from when building a portfolio today. Honestly, I would have trouble limiting my buying to just a few of these names.

It is eerily reminiscent of the last time there was this much fear and loathing in the market. In October of 2002, a diversified portfolio of 75 stocks generated more than 50% gains in as little as a month’s time.

There is something to be said about being long when that moment happens. If you miss the run, your returns could be adversely impacted. Given that it is impossible to exactly time the inflection point, positioning long today seems like a wise course of action.

So Where Should You Be Buying?

You already have the banking names I mentioned in my article last week.

I would also take a long look at consumer retail names that have been pummeled in anticipation of a deep recession.

Names like Pacific Sunwear (PSUN), Nordstrom (JWN) and Cheesecake Factory (CAKE) are three names that look interesting to me, but I would not limit myself there. (For more details on these stocks, see: "Investors Have Their Fill" and "A Great Buying Opportunity.")

Investors should give consideration to auto makers and airlines too.

General Motors (GM), Ford (F), American Airlines (AMR) and United Air (UAUA) could all help turbocharge portfolios in the long term. (Related articles: "Bargain Hunters Descend on Airline Stocks" and "Can General Motors Pull a U-Turn?")

Do you have the guts to take on the shorts like Wells Fargo did by raising its dividend?

If so, start buying stocks.

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