How Can Market Players Move Forward?

Bubble Trouble

There have been continued discussions about bubbles over the past 10 years...tech, housing, oil, gold and others. While we've seen these bubbles blow up, the collateral damage has been fierce. But there is one bubble that is currently being popped that makes us all cringe...the employment bubble. While it may not sound pretty, there is more pricking of the bubble on the way. You see, the employment bubble was created to support the other bubbles. There is always a lag effect. How much further to go on the layoffs? Quite a ways to go, I'm afraid. Until the excess capacity is reduced then layoffs will continue.

Market is Trapped in a Range

The range is wide, on the SPX it spans 800-920. Moves within the range can be sharp and meaningful, but also sold off quickly. Playing the range means being patient and waiting for the move to lower end (to buy) and the upper end (to sell). The reliability is there until the technicals say it's not. There is a tug-of-war with the markets and politicians currently, and who wins is anyone's guess.

Is There a Way Out of This Mess?

The more time passes, the closer we are to getting out of this mess. Certainly many solutions have been talked about and tried, most have been failures. The TARP plan was good in theory but has been applied poorly. The best solution to get growth going is to support small business, foster new ideas and embrace entrepreneurship. It is this support that will keep the cycle going.

The Question is not 'When', the Question is 'How'

Market players are tired of this range, tired of no action, tired of waiting. They want to move forward, but without any solution that's just not possible. The annoyance of this bear market and the fleeing of capital certainly weighs on the confidence of market participants. Like every bear market, this too shall pass...albeit rather slowly. We must adapt our trading style to the environment and change the mindset.....for instance, buy and hold is really no longer the best practice....in most cases it has turned into hope and pray. Understand the changes that are happening and make the adjustment, you'll be able to hold onto your capital longer.

Disclosures: none

Comments

[Moon Kil Woong:]

I would not call employment a bubble. It is part and parcel of a standard economic cycle. Especially since unemployment never reached anywhere close to 1%. The bigger bubbles are the Internet, housing, derivatives, and possibly Treasury note bubbles. People buying 30 year notes are going to be hurting if interest rates don't stay low and range bound.

Regarding the market being in a trading range I concur wholeheartedly. Trade accordingly, however, the low edge keeps getting tested and may be what breaks rather than upside. What worries market participants is lack of trading volume and lack of any strong leadership more than anything else. Most of them are playing with other people's money and are having a hard time justifying their salaries these days since cash has been beating just about everyone.

It doesn't take a financial advisor to keep your money in cash.

Jan 29 08:52 AM

[Jim Hawthorne:]

Now, wait a minute here!
1. I agree with constructe's comment that 'employment is not a bubble' & etc.
2. Yes, we are in a trading range; but it is not really all that 'wide'; especially when viewed in the context of, say, an 18 month daily chart! In fact, we are well within the declining channel of the lower highs and lower lows. What I find most troublesome about the trading range we are in is that it is not moving into any kind of discernible base.
3. Is there a way out of this mess? You betcha! Time, Price, Patience, Nimbleness, open minded Flexibility, and above all, Discipline!
4. Even though they are few and fleeting, there are opportunities out there! PSMT, SUTR, OPTV, TLM, CRNT, ZEUS, CYD, GLT, FRPT, PICO, GTIV, SQM, NRG, OSG, ERF, and FSYS have all blipped on my radar and rang a few cherries since the November lows in swing trades.

Disclosures: in and out of the above and also some some very speculative nibbles in NXG, GLD, AUY

Jan 29 08:46 PM

[rodgerreno:]

i am sure that money can be made with quick trades .i have made 2-300% winning trades with nm,feed,say and drsy.i think i will find more winning trades.i'm using a modified ben graham screen to find candidates.i changed the screen where it does not require a large market cap.i don't have the nerve to invest very much money on these trades but even trading small i've made $10,000 in a month.i still can't help but feel i'm playing a slot machine even though my skills tell me that stocks are undervalued,and my good scince tells me that there will be buyers at these prices.all my long term holdings are down almost to the price i bought them at.a few are less than purchase price.

Jan 31 06:22 PM