Why This Rally Is Unsustainable 187 comments
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The S&P 500 is now up 31.0% off of its March 6 lows around 666. Europe's Dow Jones Stoxx 600 Index has broken even YTD. But since the announcement of the Public-Private Investment Program (PPIP) on March 23, the equity market's rally has been defined by a rising channel on low volume. There have been no high-volume breakouts, the uptrend's channel's slope is very low, and the market has trended approximately sideways since April 9.
Readers may notice I mentioned the possibility of a rally to Dow 9000 back around the PPIP announcement. I mentioned this because if the Fed and Treasury were intent on printing our way out of this starting as soon as possible, their combined price-inflating powers would be unstoppable. There is no check or balance to the Federal Reserve and there has never been an audit of its balance sheet.
However, since the PPIP's announcement, the equity market has not shown traditional bullish technical movement. A slow ascending channel on low volume indicates a sloppy, bleeding market to the upside, nothing more than a setup for big downside action. Also, gold went down since the PPIP's announcement, which didn't add confluence to the price-inflating thesis behind the Dow 9000. This is why I turned bearish on the market, expecting a drastic sell-off, possibly to March lows and maybe below.
With such low volume, how is this market continuing its slow, yet upward ascent? Quant fund deleveraging has become the reason of choice to which this market movement has been attributed. Quants tend to short stocks with weak fundamentals and relative weakness versus indices, and quant deleveraging should manifest in weak stocks seeing dramatic share surges as quants scramble to cover shorts to lessen market exposure. And that's exactly what's happened. Stocks like XL Capital (XL), American Capital (ACAS), Vornado Realty (VNO), and Liz Claiborne (LIZ) showed massive rallies since March lows, leading the market and far outpacing stronger, more fundamentally-strong stocks, even ones with high beta. Even Crocs (CROX) enjoyed a 50DMA breakout. This is highly indicative of a "short squeeze" bear bounce, rather than a sustainable bottoming rally, which is characterized by new market leaders and sectors showing relative strength against previous leaders and breaking out of tight bases formed over several months.
Even if perennial short candidates are being squeezed, why? Why are quants deleveraging so quickly into this rally? It seems like the initial rally igniters caught quants (and reality in fact) surprised. I am of course talking about the Citigroup (C), Bank of America (BAC), and JPMorganChase (JPM) memos/releases announcing returns to profitability for the banks. Then came the earnings reports to back them. As many of you know by now, these announcements were all a load of hot air, as illegal AIG (AIG) wholesale portfolio unwinds financed the one-time "fixed-income trading" revenues that boosted all of the earnings and FASB accounting gimmickry allowed writedowns to take a minimal cut from positive surprises.
On top of that, however, ZeroHedge pointed out the significant role Goldman Sachs (GS)'s program trading arm is having during this rally. With 1 billion shares principal traded becoming a weekly regular for Goldman and its principal/customer facilitation+agency maintaining a ratio above 5x, Goldman has been massively increasing its participation (in its principal trading, at that) while other quants and program trading arms are quickly deleveraging. The conspiracy theorist in me wants to say the Fed/PPT is throwing kool-aid capital at the market through administration girlfriend Goldman Sachs to drive up the market and force short covering. Of course, this is timed perfectly, as banks offer BS earnings reports financed by illegal AIG transactions aided and abetted by the Fed and Treasury. But of course, only the conspiracy theorist in me would ever dare make such an assertion.
So how does this all come together? The rally starts primarily with the AIG unwinds. AIG was bailed out by the Federal Reserve in September 2008 as bankruptcy was deemed a systemic risk because of AIG's massive counterparty obligations in the CDS arena. The liquidity extended by the Fed to AIG was meant to allow CDS settlements to counterparties at significant haircuts, but with enough payment to prevent a systemic crisis. But were haircuts taken or were these trades settled at 100% face value with massive profits to counterparty banks? Former New York Attorney General Elliot Spitzer clearly seems to think not, as he wrote in his terrific article The Real AIG Scandal. All of the hooplah has led TARP's inspector general Neil Barofsky to launch an investigation into the extent of contract settlement repayments. Bank of New York Mellon (BK) missed earnings estimates by $0.10 in the middle of amazing Q1 numbers from the other big banks. Such is the result when you aren't eligible for AIG counterparty money. Especially interesting is Goldman Sachs's counterparty relationship to AIG (from which it received $12.9B), an issue delved into as early as last September itself in the NY Times.
But I digress. The AIG CDS unwind trades were allowed by new trade protocols given by the ISDA, the only regulator of the OTC CDS market. In turn, these massive unwinds (financed by the taxpayer, who paid for the initial AIG bailout and all credit lines extended since) yielded huge one-time profits for banks, who flaunted them like no tomorrow. After releasing "leaked" memos (the first of which was from Citi on March 10, the rally's first day) asserting first-quarter profitability, banks saw huge rallies in their stocks. At this point off of the lows, the rally was merely an oversold bounce and its sustainability was very much in question. And in fact, looking back now, any sideline capital that was infused into financials on the news of these memos was misallocated, as the memos presented one-time illegal gains as indicators of sustainable turnarounds in bank earnings.
The market rallied on the news and started selling off around S&P 800, at January cycle lows and index 50DMAs. This is where I expected the rally to end, as previous support (January lows) tends to offer resistance once broken and important moving averages like the 50DMA offer important buy/sell points, depending on the market.
Then came news of the PPIP and the market once again soared. Since then, the market has rallied just over 6% on very low volume. This is where the quant dislocation comes into play. Quants, who make market-neutral high-frequency scalp trades on leverage to produce returns, were caught short in a strong rally. Again, the rally itself was initially catalyzed by bank announcements that attempted to present unsustainable profits as sustainable, so the rally in effect of the news would also be just that-- unsustainable. But the quants were forced to deleverage into the rally as their models were getting whipsawed by the unusual market activity. As they deleveraged and covered short positions in weak stocks and were forced to hedge their delta by taking bullish positions, this added fuel to the rally, which caused more deleveraging, and so on. This is evidenced by Renaissance's recent underperformance against the S&P by 17%, as well as a possible reason for the possible unwinding of Morgan Stanley (MS)'s PDT arm. A recent WSJ article even claims quants are "brewing trouble" over at Morgan Stanley.
So where is the breaking point? A look into the why instead of how of this rally can offer some insight. This whole rally is essentially a scam to pass off asset depreciation in struggling financials to the taxpayer. The AIG counterparty profits were all taxpayer-financed. The PPIP's leverage is taxpayer-financed. But the real issue is the equity raises in this rally. Goldman announced an equity sale with its earnings a day after pre-announcing earnings. This is $5 billion of Goldman equity being traded for $5 billion of the public's cash on misconceived presuppositions of sustainable profitability. On top of that, Goldman sold $2 billion in bonds on April 29, just days ahead of stress test results. Though the stress test results, made public on May 4 but pre-released to the banks April 24th, are most likely going to be passes for all 19 banks, the details of the results as well as government-suggested capital raises will be the real issue looking forward. REITs have been offering shares all over the place, and conspiracies of their own have developed between the connection of JPMorganChase and Merrill Lynch/Bank of American analysts and the REIT secondaries these banks have been underwriting.
Also, the recent surge in Goldman principal program trading starts to take some context here. If Goldman's program trading arm has been feeding into the rally and forcing quant deleveraging, then this explains why-- so it can raise cash by selling stock. Which I predicted and which indeed occurred. It'd be interesting to know how much of Goldman's $5B has been raised at these scam-inflated prices ($123/share I believe was the going price for the secondary). As soon as it's "finished," I fully expect GS's 5x principal/customer facilitation+agency ratio to fall off a cliff. In a terrific article entitled Goldman's Offering and Recent Rally: Coincidence?, Ben El-Baz states "although there is no hard evidence that Goldman intentionally hyped up the market rally and the financial sector to get a better price on its offering, it would be very naïve to assume that they passively let the market determine the price of this massive dilution." This principal trading participation is the circumstantial evidence I'm sure he would love to see to back up his thesis.
Technically, the rally should end when quant deleveraging catches up with the rest of the market. That is, when the slow-money directional trend-setters deleverage their long buy-and-hold positions into the rally at a higher pace than the fast-money liquidity-providing quants do. This should occur at important inflection points where lots of supply is offered, otherwise known as resistance levels. I have been pointing out S&P 875 as a significant resistance level that might mark the rally's top and so far it hasn't been able to breach that level past a few points on no volume.
The selling/deleveraging into the rally has already started and should start picking up on volume soon. According to Washington Service, NYSE listed company insiders have been selling into this rally at the fastest rate since October 2007. Insiders sold over $8 for each dollar they purchased of stock in the first three weeks of April. To give that some context, the S&P topped out on October 11, 2007 and declined 57% before hitting March 2009 lows. If everything is so peachy-keen in the market and economy, why aren't insiders buying or at least holding stakes in their own companies? Possibly because they recognize that the "green shoots" are just weeds.
When it does end slower money participants will be selling into a highly illiquid market, due to the deleveraging quants (liquidity providers) have had to face in the last several weeks. This will cause a spike in volatility and failed trade executions and whipsaws galore. Reality will quickly return to the market and the AIG CDS unwind story may gain more exposure, especially through the work of Barofsky and Spitzer. This would damage the investment thesis of all those who bought banks on their memos or earnings announcements, which would erase a big part of their recent huge gains.
So who loses in this rally? The taxpayer of course. As bank equity is sold to the public into a rally financed by illegal and unethical uses of taxpayer funding. This is clearly all done with the full aiding and abetting of the Treasury and Federal Reserve, which has come under recent attack because of its alleged involvement in forcing BofA CEO Ken Lewis to buy Merrill Lynch and hide the distressed bank's true dismal state of affairs from BAC shareholders. If Goldman's principal trading increase is indicative of PPT activity, that also is taxpayer money being funnelled into an unsustainable rally, this time through the intermediary of Goldman's program trading arm.
The memos, the earnings, the statements all say the same thing-- banks made money Q1 2009. They don't mention why-- because of AIG portfolio unwinds and accounting gimmicks. Clearly causing an unsustainable hype in the soundness of American banks will lead to an unsustainable rally in equities. And that's what is happening.
The United States GDP contracted over 6% in Q1 2009, well worse than estimates. A flu outbreak characterized as an imminent pandemic by the WHO is spreading across the world, with early targets at worst case scenario losses estimated around $3 trillion. General Motors (GM) announced its debt restructuring plan this week, met with sharp criticism and a drastically different counteroffer from bondholders, suggesting Chapter 11 is in order for the struggling automaker. Chrysler is expected to announce its own bankruptcy any day. Even government stress tests, whose worst-case scenarios are tangentially worse than current economic conditions, suggest at least six of the 19 banks tested need to raise more capital. The selling catalysts are all over the place, while the buying catalysts were one-time unsustainable profits.
After announcing $1.2 trillion of arranged agency and Treasury purchases in mid March, the Federal Reserve didn't announce anymore quantitative easing today, while keeping rates at all-time lows. Once markets sell-off and liquidity once again contracts, the Fed will have much more political capital left to be able to monetize much more of this ludicrous spending. Expect rates to rise from here (TBT is a good play for that) until the next wave of deflationary deleveraging and equity selling allows the Fed justification for another big round of QE, again capping rates and inflating the Treasury bubble. Mortgage rates are at Greenspan levels. Clearly the powers that be are reflating a reflated bubble. From dot-coms to houses and now to Treasuries. What is all of this? Passing off asset depreciation to the taxpayer in the form of currency depreciation. Wait for the black swan in Treasuries to implode the bubble (which is currently inflating), rates to rise, and rampant inflation.
But I yet again digress. Looking at the market right now, it is approaching the apex between important resistance at S&P 875 and the support trendline of its ascending channel. After breaking its shorter term rising wedge, it has formed a bear flag, and is approaching a break of its channel trendline, which should send the market falling. Other indices show similar bearish patterns, with the Nasdaq approaching massive supply at its 200DMA. Several oscillators have indicated divergences lately, suggesting the market is ready for its next wave down.
A breakout of 875 on big volume would change things, possibly indicating the BS rally found a way to incite slow money to buy into the rally, perhaps bringing enough buying power in to confirm a sustained bull trend (assuming the Treasury continues to spend and the Fed continues to print to stave off the real losses that will occur once loans reset and we witness widespread defaults). Irrational exuberance has been evident in the markets before but the deciding factor that allows it to drive sustainable (at least for the 1-2 year time horizon) bull markets is the inclusion of slow-liquidity sidelined institutional directional trend-setting capital in the rally. Bull markets have volume to direct the equity prices' ascent. That simply doesn't exist right now and premarket gaps up are responsible for a big part of the rally. For the rally to continue, even in the face of complete irrationality, it needs sidelined cash to come pummeling into equities. It needs large volume accumulation to drive directional trends. A low volume rally floating higher is not indicative of any of that. Especially if this rally gets parabolic soon, which would lead to disastrous liquidity issues.
I want to say here that I understand there is no arguing with the market. It is never "wrong" as only price pays. I share the opinion that the only "fair" price of a stock (or anything in the world) is its current price in the open market-- the intersection of supply and demand. However, that does not mean price trends that appear sustainable are sustainable. That does not mean market participants are always right in their trades or that their investment theses are "right." My point is that this current rally is unsustainable and the higher we go, the harder and more volatile the fall will be. The catalysts behind the rally were all BS and there is clear government-bank collusion to pass off losses to the taxpayer.
Disclosure: Long TBT; Short GS, JPM, MS
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This article has 187 comments:
"I see massive selling in Goldman to begin soon, as well as a potential credit rating cut. Technically, Goldman is in a rising channel, like a long-term bear flag, and a breakdown at its channel support line should lead to drastically lower prices. It broke its 50DMA on Friday on strong volume, suggesting the selling is approaching quickly. I expect it to really pick up later this week and for Goldman to be trading in the $50 range by the end of the month.....Disclosure: Short GS shares, long GS puts."
...HAW!...but you just keep talking, son!...I'm sure one of these days you're going be right.
Clearly GS is manipulating prices on a daily basis. I don't understand why non-GS quant funds can't figure out how to compensate for the obvious ploys.
Good luck with your shorts. The market can stay irrational longer than most of us can stay solvent.
I expect high un-employment thru Obama's first term, easily over 10% for 4 more years. with that level of un-employment how can stocks appreciate? I think best strategy is for solid co's, international sales, and dividends. Possibly returning 4-7% annual. Much higher taxes on income and energy, both bad for jobs and the economy.
I wish you would have offered a clearly written summary, but thanks for trying.
On May 01 11:02 AM Wise Golden wrote:
> Sideways market since April 9th? You lost me there -- you must have
> been talking about April 9th of some other year. April 2009 was
> the second best month in stock market history.
On May 01 11:02 AM Wise Golden wrote:
> Sideways market since April 9th? You lost me there -- you must have
> been talking about April 9th of some other year. April 2009 was the
> second best month in stock market history.
I don't buy arguments that claim program trading and quant funds are responsible for this rally. No one has really proved the recent short squeeze theory to my satisfaction yet. Which means authors writing about this need to strengthen their arguments.
While fundamentals are poor, the rate of decline has slowed and there is momentum in the market (which is more than program trading and quant funds). I expected the market to sell of before now, but it hasn't. Which indicates to me that the momentum sentiment is strong.
The author might consider trading some options to hedge his bearish positions!
ur over thinking urself here. This rally was not caused by quants or technials. There were very real economic factors that indicated and continue to lead to, stabilization. The market acted accordingly.
The economic footing will prevent a retest of the lows, the low valuations will simply not be justified.
(quant trading facilitates or exaggerates movements, it does not create a sustained market rally as we recently had)
waf76:
" I think most of the comments are quite negative when NS is pointing out the obvious. "
It is the hallmark of irrationality to react badly to reality.
I envy these smart young bucks, who have a once in a lifetime opportunity to get rich going short so early in life, and then bask in the success for decades thereafter. Oh, to be young again!
I'll go with Doug Kass's predictions - SP at 1070 by fall. If he is as raccurate about that as he was at calling the bottom, which he nailed to the very day and level - then you shorts had better start running for the hills as you will not have much left. There is gobs of money on the sidelines, and if that money starts getting scared that it is getting left behind, look out - you could see another 100 point run in the SP 500 over a very short period of time when it occurs. Add to that the shorts trying to cover their positions, and it could be very interesting.
However, the short case for the long bond is clear. TBT is a reasonably safe bet, especially since the Fed didn't come to the rescue Thursday. I'd recommend this to the Grandma's out there, more than equities. Also, the difference in percentages of increase vs decrease of the long bond vs. TBT are widening, which means more public participation. Big changes are near.
Full disclosure: no position in TBT, till it's less volatile.
I'm long credit spreads and commodity prices.
"It is the hallmark of irrationality to react badly to reality."
Great sentence!
This article nicely meshes with what I have been reading from Tyler Durden's excellent posts all last month.
On May 01 02:23 PM mrmillergd wrote:
> Check your numbers. Dow close on April 9 was 8083. On April 30 it
> was 8168 - a whopping 1% increase. I think the author's classification
> as being "sideways" is appropriate.
On May 01 02:07 PM Naufal Sanaullah wrote:
> Market is up about 2.5% since April 9.
XL capital staged a rally to $9.84 from the low digits. To this basketcase author this is a 400% unjustfied rally. He would argue "What has changed in the fundamentals since March of this year to justify a 400% rally?" To those investors who remember seeing XL at 40 dollar plus last year it has barely begun to make up for the decline. These investors were probably shocked and aghast that a 40 dollar stock so quickly ran down to the single low digits in such a short timeframe. The same is true with all other equities the author talks about. The author forgets that these were behemoths once that were brutally punished by the market and have not recovered even to half their original value.
"THE MARKET OVER CORRECTED MANY EQUITIES TO THE DOWNSIDE AND NOW IS BARELY BEGUN MAKING UP FOR THE OVER CORRECTION." There have been significant improvements in the fundamentals that are helping the markets now put proper value on these devastated equities. While the market will not reward them with their 2008 highs (yet!) the market will certainly take them a lot higher than where they are today.
It is exactly this "Cup half empty" syndrome that creates suckers out of people. People like this author always think they are smarter than the market and always try to double guess and/or outsmart the market. There is a whole bunch of these sucker authors on Seeking Alpha who have caused their readers great disservice by influencing them to stay out of this rally. If this author and others like him had simply followed charts and then came up with a rationale to justify why the markets were rewarding the equities perhaps they would not only be wiser but also richer.
As for the author finding faults with the technical parameters of this rally there are thousand other analysts who will look at the same data and argue otherwise. At the end of the day the markets rule and investors are wise to follow the trend till the bend at the end.
On May 01 03:50 PM Whitehawk wrote:
> Banks are making money off of the yield curve. You fail to mention
> that. But I agree that accounting tricks have helped their Q1 reports.
>
>
> I don't buy arguments that claim program trading and quant funds
> are responsible for this rally. No one has really proved the recent
> short squeeze theory to my satisfaction yet. Which means authors
> writing about this need to strengthen their arguments.
>
> While fundamentals are poor, the rate of decline has slowed and there
> is momentum in the market (which is more than program trading and
> quant funds). I expected the market to sell of before now, but it
> hasn't. Which indicates to me that the momentum sentiment is strong.
>
>
> The author might consider trading some options to hedge his bearish
> positions!
On May 02 02:32 AM InvestBaboo wrote:
> This author is a real basketcase.
>
> XL capital staged a rally to $9.84 from the low digits. To this basketcase
> author this is a 400% unjustfied rally. He would argue "What has
> changed in the fundamentals since March of this year to justify a
> 400% rally?" To those investors who remember seeing XL at 40 dollar
> plus last year it has barely begun to make up for the decline. These
> investors were probably shocked and aghast that a 40 dollar stock
> so quickly ran down to the single low digits in such a short timeframe.
> The same is true with all other equities the author talks about.
> The author forgets that these were behemoths once that were brutally
> punished by the market and have not recovered even to half their
> original value.
>
> "THE MARKET OVER CORRECTED MANY EQUITIES TO THE DOWNSIDE AND NOW
> IS BARELY BEGUN MAKING UP FOR THE OVER CORRECTION." There have been
> significant improvements in the fundamentals that are helping the
> markets now put proper value on these devastated equities. While
> the market will not reward them with their 2008 highs (yet!) the
> market will certainly take them a lot higher than where they are
> today.
>
> It is exactly this "Cup half empty" syndrome that creates suckers
> out of people. People like this author always think they are smarter
> than the market and always try to double guess and/or outsmart the
> market. There is a whole bunch of these sucker authors on Seeking
> Alpha who have caused their readers great disservice by influencing
> them to stay out of this rally. If this author and others like him
> had simply followed charts and then came up with a rationale to justify
> why the markets were rewarding the equities perhaps they would not
> only be wiser but also richer.
>
> As for the author finding faults with the technical parameters of
> this rally there are thousand other analysts who will look at the
> same data and argue otherwise. At the end of the day the markets
> rule and investors are wise to follow the trend till the bend at
> the end.
No, the market is what it is and you nor anyone else can predict the future. Make your bets....step up and make your bets.......
Personally, I'll hang with the Warren Buffett's of the world rather than the Sanaullah's of the world....but that is just me.
of our monetary system the argument seems to have become much about defining what's acceptable.
It now appears there are no limits, no out of bounds and most disturbing no accountability.
Only how long this scam can go on and ultimately how ugly will it be when it blows up remains to be seen.
"Don't forget that a large amount of IRA money is added in April. That comes in mostly through mutual funds. Fund managers HAVE to put that money to work so it goes into the market and with a rising trend in place it serves to drive a weak market ahead. Why is it that the mechanics of the market are so rarely discussed in the mainstream media???? "
I agree completely. It's a very basic fundamental that is overlooked.
As far as the article: The market bottomed March 5. Pick just about any chart to verify. If you don't cover now you will be covering the penny stocks by July.
go figure.
S&P close April 9th 856.56, close this past friday 877.52
is about 2.45 percent. but if you listen to cetins posts the market is always surging. what a joke.
On May 02 09:45 AM Smackdown wrote:
> Agree 1000%. The Feb/March crash was unwarranted and a capitulation
> in many sectors. Screw the general market, look at the subsectors.
> Lots of capitulation. This "rally" has not even gotten the general
> market even on the year. Not close. Instead of fixating on
> comparisons to the Great Depression market (worthless IMO), one should
> fixate on opportunity. Gambling by being short is just that, a
> gamble. I look for real tangible opportunities. Before the
> general stock market can really heal, the credit markets need to
> heal. As such, if one invested in higher yielding securities such
> as MLPS, Preferreds, High Yield Bonds, certain REITS, they would
> be up well over 100% since November. I am up 130% since then and
> 40%+ YTD. It is not luck. I look for arb opportunities and depresseed
> prices due to hedge delevering. Rant all you want about the market
> crashing again, I'll be happy identifying yield anomalies versus
> the curve and executing on them. And I get a 10+% current yield
> while I invest. Does your short pay you the rent? Looking forward
> to my thumbs down for my real world post.
As for REITS, I'd be very careful
On May 02 09:45 AM Smackdown wrote:
> Agree 1000%. The Feb/March crash was unwarranted and a capitulation
> in many sectors. Screw the general market, look at the subsectors.
> Lots of capitulation. This "rally" has not even gotten the general
> market even on the year. Not close. Instead of fixating on
> comparisons to the Great Depression market (worthless IMO), one should
> fixate on opportunity. Gambling by being short is just that, a
> gamble. I look for real tangible opportunities. Before the
> general stock market can really heal, the credit markets need to
> heal. As such, if one invested in higher yielding securities such
> as MLPS, Preferreds, High Yield Bonds, certain REITS, they would
> be up well over 100% since November. I am up 130% since then and
> 40%+ YTD. It is not luck. I look for arb opportunities and depresseed
> prices due to hedge delevering. Rant all you want about the market
> crashing again, I'll be happy identifying yield anomalies versus
> the curve and executing on them. And I get a 10+% current yield
> while I invest. Does your short pay you the rent? Looking forward
> to my thumbs down for my real world post.
On May 01 05:35 PM Cetin Hakimoglu wrote:
> Agree. Shorting this market is like stepping in front of a train,
> but I disagree about the topping out at 1070. The market will keep
> surging and never look back like in 1982 or 2003. Fundamentals are
> improving
>
>
>
Amusement
Someone still optemistics
and even maybe: sometimes things go different as everybody thinks. Think of the way that US always told everybody how to do business, but screwed up themselfs. Maybe China will do well, maybe Europe is doing better than US, as usuall. US is down 6% (as always astonishinglky more than the experts say)
On May 01 08:52 PM Donkey Kong wrote:
> Stop posting because no one is listening to you......
If we get a 5% pullback again, it will be go time!!
In regards to Goldman and others, our tax payer money is gone, and if they laundry the money through a share offering, so be it. Im not going to lose sleep over it.
I could go on.......but whats the point. I am going to go have a drink, before socialism stops that
On May 02 11:36 AM dcb wrote:
> Feb march crash was engineered by the same people keeping the market
> up now, DUH
On May 02 11:39 AM dcb wrote:
> I looked at the perfromance of HYG and Pff and don't see that performance,
> and I see lots of time down side. the gains have been seince march
> lows.
> As for REITS, I'd be very careful
But when people protest too much about things like pornography and prostitution we often suspect them of being hypocrites and we remember all those preachers on their knees asking forgiveness.
SOMEBODY is buying this rally but not very many are admitting it.
Cetin is in up to his neck and doesn't mind admitting it.
On May 01 08:52 PM Donkey Kong wrote:
> Stop posting because no one is listening to you......
-Investors can find monthly cash flow in MLP's around 7-10%(KMP, EPD, TPP, LINE) and Ginnie Mae bond funds (4.5-5%).
-Also consider intermediate investment grade corporate bond funds due to wide credit spreads that will come in over time(5%).
-Stocks with strong balance sheets will be buys again after the market corrects.
-A strong short is the TBT (20 year T bond).
-Cash can be held in SHY (1-3 year T's; 2%)
Note: Long all of the above.
On May 02 12:38 PM carey_jim wrote:
> Many people listen to Cetin, as his all time record negative ratings
> prove. If they didn't read his posts, they wouldn't rate them.<br/>
>
> But when people protest too much about things like pornography and
> prostitution we often suspect them of being hypocrites and we remember
> all those preachers on their knees asking forgiveness.
>
> SOMEBODY is buying this rally but not very many are admitting it.
>
>
> Cetin is in up to his neck and doesn't mind admitting it.
>
> On May 01 08:52 PM Donkey Kong wrote:
On May 02 01:12 PM Market Sniper wrote:
> Fun times! We all enjoy a good prognostication and we all indulge
> in it from time to time. As a trader (predominately day trading)
> I have found it is best NOT to get married to a market viewpoint.
> The market speaks (and sometimes even sings!) to us constantly. The
> WHY of it does not matter. Only price pays. Spectacular equity rally.
> the market spoke, have you made money? Meanwhile, could be the bond
> vigilantes are starting to mount up. Buy the TBT and sell the 30
> year! Been steadily adding to positions in both. Could well be the
> trade of the decade if not the century.
It's sad that our nation and economy have come to this, but there's no denying the facts you present, and your analysis is very well-supported.
> Agree to some extent. Basing your investment decisions on ideology,
> rather than objective economic & technical analysis is an easy
> way to lose money in bull markets.
It's an easy way to lose money in bear markets, too.
Truly objective economic and technical analysis indicates that the current rally is most likely a sucker's rally.
The market is getting ever further from the economic fundamentals that should be driving it and is overdue for a correction.
As a chronic market cheerleader who only ever comments on these forums to rah-rah the markets and try to write off any potentially bearish news, you're a hell of a one to go about lecturing anyone else about letting ideology get in the way of sound analysis, Cetin.
> I agree in some ways about the drop being politically motivated by
> the conspiring Republicans.
Oh, puh-LEEZE.
There are a million reasons why this line of argument is spurious, but let me state the most obvious one first:
Remember when this slide started? BEFORE THE ELECTIONS!
If Republicans really had the control over the markets that you seem to want to think, they'd have postponed it so McCain could get into office.
What ACTUALLY happened was that the market fell dramatically in the months before the election. The voter reasoning that turned the tide looked something like this:
"The economy is slipping because there was too much deregulation!"
"Hey, waitaminute ... McCain's been the biggest cheerleader for deregulation ... Maybe the Democrats are right that he's just another Bush ... I'd better vote for Obama!"
Or, they would have waited until Obama's third year so he'd take the blame for the collapse.
The market slide HELPED OBAMA WIN THE WHITE HOUSE.
That's not something any Republican wanted (myself included).
> I concur. I think the author is grasping at straws.
Cetin, let's see you present any facts, or anything to support your own cheerleading other than "the market is in an uptrend; therefore the trend will continue!"
On May 01 10:57 PM Gaucho wrote:
> Based on what fundamentals?
>
> Consumers ability to spend.
> The unemployment rate.
> Balanced budget.
> Manufacturing investment.
> Housing market.
> Exports.
> Price of oil now and future.
> GDP
>
> I could never understand the rally in the market. I could never understand
> the doubling of GS. All of this does not make sense and yet the authors
> explination does.
>
> BTW gold has been manipulated way below where it should be. Buy the
> metal and not the ETF since the government will take the EFT and
> give you worthless dollars when it gets ugly.
>
> Another BTW if this swine flu really gets going then you can kiss
> the economy goodby. As if it wasn't done already.
I am pretty apolitical but I am ashamed at the Republicans for their borderline treasonish behavior in a time like this. At the end of the day, I want America stronger and the utter lack of bipartisonship from them was putrid. A bunch of sore losers. IMO, they should have banded together like after 9/11. We would not have seen that drop. We also probably would not be higher than we are now, but we would have avoided that BS drop.
I am also no S&P or DOW cheerleader, but you guys are delusional if you think that a great many of sectors did not capitulate in a massive decisive way.
On May 02 01:45 PM Missing_Link wrote:
> On May 02 12:27 PM Smackdown wrote:
finance.yahoo.com/char...=^DJI#chart2:symbol=^d...
B. Most trendlines can see the stiff resistance point around 8,300. Which we touched this past week only to melt away 150 points.
C. I feel that the talking-heads have exhausted their amunition. They massaged this rally with questionable reporting, shady tactics, shell games, and rhetoric calling for blind optimism. This has worked for 2 months but people should be increasingly skeptical. Now, the only hope is that the market refuses to take the bait of what is sure to be a be a sugarcoated stress test report.
(www.govtrack.us/congre...)
Write your congress person: www.house.gov/house/Me...
market-ticker.denninge...
On May 01 05:35 PM Cetin Hakimoglu wrote:
> Agree. Shorting this market is like stepping in front of a train,
> but I disagree about the topping out at 1070. The market will keep
> surging and never look back like in 1982 or 2003. Fundamentals are
> improving
>
>
>
stockcharts.com/def/se...[PA!B50][D][F1!3!!!2!2...
I disagree with author on his bearish position. While the market is certainly overbought technically and due to a 10 - 15% correction - its going up after this. The reasons are fundamental. Look at figure 1 in pzena's analysis. The S&P 500 relative to 10 year treasuries is cheaper than its ever been in 30 years.
www.pzena.com/investme...
As credit markets stabilize there the meltup in equity prices will continue.
> I am referring to the Feb/March downdraft. After the stimulus was
> signed. Dow went down like 1500 points concurrent with all the
> Republicans dissenting with the package. Rush blathering. Governors
> refusing funds. That dissent caused the biggest breakdown of confidence
> I have ever seen.
Are you seriously trying to tell me Rush Limbaugh and a few posturing Republican governors CAUSED the Feb/March downdraft?
Seriously?
A couple of talking heads caused the Feb/March downdraft, and not the continued collapse of the banks and the economic fundamentals?
> I am pretty apolitical but I am ashamed at the Republicans
> for their borderline treasonish behavior in a time like this.
You want treason?
Try Obama's multi-trillion dollar bailout of the banks that got us into this mess in the first place, the endless flood of stimulus packages and bailouts that our children and grandchildren will be paying for in taxes and/or inflation for decades to come.
Try the obscene budget deficits pushed by a Congress that has been solidly Democratic since Bush's second term, and Obama's scandalous attempts to disown those deficits (a mirror image of what's happening in California, where the overwhelmingly Democratic state congress blames the Republican governor for the economic morass they created).
Try the Democrats' consistent inflation of subprime housing through Fannie and Freddie Mae in the Clinton and GWB years, their consistent blocking of Republican attempts to rein in Fannie and Freddie, and their blaming of Republicans when it finally collapsed.
Those sort of shenanigans contributed to the collapse ... not a few critical words from right-wing talking heas that no one but the extreme right pays attention to anyway.
On to happier subjects, I expect the yield oriented markets to continue to rally as the yields revert closer to the mean. Abnormal spreads, the magnitude we saw, cannot and will not be sustained. This is why index investing, either short or long, in this market is a fools folly. Grab the juicy yields.....
On May 02 04:45 PM Missing_Link wrote:
> On May 02 02:01 PM Smackdown wrote:
it's close....but not "quite" there just yet..
2.bp.blogspot.com/_Qdt...
stockstop.org/download...
jmo on the GS trade....
even tho it's "expected" that it will be the "darling" of the Stress Test results, i still think it get's a small pop from them if that is that case, via "whew, relief...that's over with!"
after that however, its all forward looking, which i think is bearish for the stock price....but it's not technically set up yet to me
"Given the scope and duration of the recent market advance, I believe that the U.S. equity market is vulnerable to a short-term decline of 5 percent to 6 percent," Kass said in a note to clients on Monday. -
sounds like he is predicting a correction to me.....
look, i am no bear, but are you people so deluded into thinking that this is the end of it; that this market is going to rise unfettered?? get real, peeps!
On May 01 04:04 PM accountant wrote:
> Making the short case, huh. Times must be getting pretty desparate
> for the shorts.
>
> I'll go with Doug Kass's predictions - SP at 1070 by fall. If he
> is as raccurate about that as he was at calling the bottom, which
> he nailed to the very day and level - then you shorts had better
> start running for the hills as you will not have much left. There
> is gobs of money on the sidelines, and if that money starts getting
> scared that it is getting left behind, look out - you could see another
> 100 point run in the SP 500 over a very short period of time when
> it occurs. Add to that the shorts trying to cover their positions,
> and it could be very interesting.
which means it's NOT going to happen.
there is nothing historically in any past bear market that supports this being the most likely trade.
the next pull back will sucker in tons of money, and we likely move sideways for a while...THEN fall off a cliff, as the market will continue to cause maximum pain for investors and maximum gain for traders
april 20th???
501 top on April 30th (thurs)
486 currently (friday's close)
the $NDX is the leader (still making new highs)
$ INDU is the laggard
stockstop.org/download...
there is the Russell 2000 chart....
buying after a 28% rally is moronic
There were plenty of "high volume" breakouts, plenty...so i don't know WHAT charts he is reading or if they are up-side-down....and he is TOO early to the game to be shorting here.'
close, but still TOO early...
Between 10:22 and 11:25 AM, it was up 1.10%. That's a 130,827% annual rate of gain!
Between 1:35 and 1:40 PM....well, you get the idea. I hope.
On May 02 12:01 AM mwfall wrote:
> that's would be a 43% annual rate of gain.
On May 01 02:07 PM Naufal Sanaullah wrote:
> Market is up about 2.5% since April 9.
> I am referring to the Feb/March downdraft. After the stimulus was
> signed. Dow went down like 1500 points concurrent with all the
> Republicans dissenting with the package. Rush blathering. Governors
> refusing funds. That dissent caused the biggest breakdown of confidence
> I have ever seen.
Maybe, just maybe, the breakdown of confidence was warranted. After all, why be confident when the federal government is borrowing an extra $1 trillion to add to its already staggering debtload? BTW, how is refusing the funding "treasonous?" The States have every right to run their own affairs when it comes to taking federal funds or not.
I LOOK AT STOCKS FROM THE POINT OF HOW FAR THEY STILL NEED TO GO TO REACH THEIR HIGHES! NOW HIW FAST THEY CAME OFF A LOW AND STILL HAVE 80 PERCENT TO GO--THAT TOO ME IS FOOLISH.
I NEVER DID THIS B4 MARCH 1ST, I COMPLETELY DUMPED MY SORRY MUTUAL FUNDS. THEY WERE WORTH ABOUT 88,500. AT END OF FRIDAYS CLOSE THEY WERE WORTH 127,000 WITH OVER 30,000 ALREADY TAKEN OUT OF THE MARKET FOR DIP TO BUY MORE STOCK
IM BEATING THE MARKET CONSISTLING AND DOING IT BY PRETTY MUCH NOT PAYING ATTENTION TO THESE ARTICLES
So we are at a 21 P/E Ratio off of earnings for 2010, even higher for this year's forward looking earnings.
Could the market go higher from here? Absolutely, and I think it will in the near term. But in the end, when all the technicals are said and done, what really matters is earnings. And based on earnings, this market is no longer cheap. In fact at over 20 P/E ratio, it actually looks a little pricey.
On May 02 10:53 PM Kunst wrote:
> The Dow was up 0.54% yesterday (5/1/09). That's a 194% annual rate
> of gain.
>
> Between 10:22 and 11:25 AM, it was up 1.10%. That's a 130,827% annual
> rate of gain!
>
> Between 1:35 and 1:40 PM....well, you get the idea. I hope.
in rality no one know where this rally will go until a correction has occurred. wither the correction will carry back to the mar lows or it will
be less of a drop. if less, i say the bull is in charge. this is the way it happened in 2003.
reading from history. all the market collapses in the last 100 years of 45% or more had a average recovery period of 200+ trading days and 60% up move.
trying to gage the market from economics is difficult. the greed and fear factor is missing
On May 01 01:26 PM jack kreg wrote:
> NS, you need some help with clarity. but you really just missed the
> real issue, Obama's socialism will not work. Yes, printing and borrowing
> money will prop up failed banks and auto's, but a sustained economic
> recovery is not in our future.
> I expect high un-employment thru Obama's first term, easily over
> 10% for 4 more years. with that level of un-employment how can stocks
> appreciate? I think best strategy is for solid co's, international
> sales, and dividends. Possibly returning 4-7% annual. Much higher
> taxes on income and energy, both bad for jobs and the economy. <br/>I
> wish you would have offered a clearly written summary, but thanks
> for trying.
Is that all it took to re-price things? Major failure by some firms...and dramatic 'lack of failure' yet by others....the govt buying bonds from itself and setting the cost of money at a 'band' of 0 to 25%...the govt getting involved in business deals that no one in their right mind would ever consider....but we're all good now....we got it...we got it!!
Not sure myself, I look at it technically first. However, the fundamentals are shocking by any standard. For me, the current level of the S&P is well within an acceptable bounce off the 667 low, and may develop into something larger. I'm happy to make money on the way up here but the larger bias still seems down.
On May 01 02:23 PM mrmillergd wrote:
> Check your numbers. Dow close on April 9 was 8083. On April 30
> it was 8168 - a whopping 1% increase. I think the author's classification
> as being "sideways" is appropriate.
The next major resistance level above 875 on the SPX is right around 920. Past that... 102. I get this from several price indicators that I have backtested and actually traded extensively with a high win % and P-L ratio.
I am short at 870 as of Friday. My S-L is at 938. If it does move up above 920, then I will be happy to be stopped out at 938, as we will probably make a break for 1000. If that is the case, I will go short again. I'm only risking 2% of my capital on this trade. Won't break the bank.
In the meantime, I am hedged with positions in oil and a REIT (NLY) paying a high yield that showed remarkable resistance in the drop in March.
I'm looking at X and AAPL, as well. Probably will sell bull put spreads at levels that I want to own them at. It's a win-win. If they don't drop in the near term, then I pocket the cash. If they do... I get paid to own the stock.
I don't think we've seen the trough of the bear market yet. No one can know what drives a bear rally higher, except in the most general way; it's too complex.
I'd like to point out what I think is is small logical error in your thinking. You state, "Clearly the powers that be are reflating a reflated bubble. From dot-coms to houses and now to Treasuries. What is all of this? Passing off asset depreciation to the taxpayer in the form of currency depreciation. Wait for the black swan in Treasuries to implode the bubble (which is currently inflating), rates to rise, and rampant inflation."
If rampant inflation is coming, then the financials have to post higher earnings for a while. They're the conduit through which the inflation is facilitated. In other words, the only route to future rising inflation is through unsustainably higher earnings for financials. (Of course, the rampant inflation we worry about--based on the 150% inflation of the monetary base--will eventually destroy the banking system. Rising interest rates mean falling financial asset values.)
For now, financials are improving, because the yield curve mints them money. But this improvement may prove transitory, given looming commercial debt problems.
More basically, the problem for V recovery hopes is that times have changed. Why? Americans (and Europeans) have been forced by decades of rising government intervention to eat their seed corn. If this is true, then we have been consuming capital--a developement that portends slumping stock and bond prices in the years ahead.
If our capital base is crumbling, relative prices change. Industries that make producer goods (stuff for other businesses) become less profitable, because a greater portion of total output has to be devoted to present consumption. So demand and pricing for capital goods slumps.
This slump makes it difficult for borrowers to repay loans, and for banks to make money lending to them. The slump in profits can't be wished away by government spending and inflating--not for very long, at least--because the inflating-spending deplete scarce capital on investment White Elephants and endless variations of "the Bridge to Nowhere".
So if inflation gets delayed for a while by poor lending prospects, financials could suffer. Moreover, government bonds--long-term certificates of financial destruction--could rally.
Of course, as you point out, the markets are rigged. Increasingly so. But we knew this; it goes with the territory.
Thank you for the careful and comprehensive analysis. There does indeed seem to be a widening gap between the market's external performance and its internal indicators, by most accounts.
Cash seems an increasingly prudent position, in my opinion.
Keep up the great work, Ubu.
When they see SPX trading near the March lows later this yr they will realize...we are in the latter stages of this technical rally(there is zero buying, all short covering and manipulation)...if there was true buying there wouldnt be 7T sitting on the sidelines and the savings rate wouldnt be 5% right now...these are facts...but odds do slightly favor a rise to meet the 200dma(950ish) but once this happens(were fairly close right now), your thesis will prove true...wouldnt even surprise me if it occurs without reaching the 200dma.
We already have 90% of stocks on NYSE trading above the 50dma...QQQQ already touched the 200dma...investor sentiment almost at 11/07 highs now.
On May 02 08:57 PM frankie cooper wrote:
> Hedge-fund manager Doug Kass, who this year was bullish on U.S. equities,
> now says the stock market could drop between 5 and 6 percent given
> the magnitude of its rally in recent weeks.
I also find it out of place to insult a very intelligent author by calling him a "basket case" simply because his point of view diverges from your own.
Did you even know what the stock market was when you were 19?
On May 02 02:32 AM InvestBaboo wrote:
> This author is a real basketcase.
>
> XL capital staged a rally to $9.84 from the low digits. To this basketcase
> author this is a 400% unjustfied rally. He would argue "What has
> changed in the fundamentals since March of this year to justify a
> 400% rally?" To those investors who remember seeing XL at 40 dollar
> plus last year it has barely begun to make up for the decline. These
> investors were probably shocked and aghast that a 40 dollar stock
> so quickly ran down to the single low digits in such a short timeframe.
> The same is true with all other equities the author talks about.
> The author forgets that these were behemoths once that were brutally
> punished by the market and have not recovered even to half their
> original value.
>
> "THE MARKET OVER CORRECTED MANY EQUITIES TO THE DOWNSIDE AND NOW
> IS BARELY BEGUN MAKING UP FOR THE OVER CORRECTION." There have been
> significant improvements in the fundamentals that are helping the
> markets now put proper value on these devastated equities. While
> the market will not reward them with their 2008 highs (yet!) the
> market will certainly take them a lot higher than where they are
> today.
>
> It is exactly this "Cup half empty" syndrome that creates suckers
> out of people. People like this author always think they are smarter
> than the market and always try to double guess and/or outsmart the
> market. There is a whole bunch of these sucker authors on Seeking
> Alpha who have caused their readers great disservice by influencing
> them to stay out of this rally. If this author and others like him
> had simply followed charts and then came up with a rationale to justify
> why the markets were rewarding the equities perhaps they would not
> only be wiser but also richer.
>
> As for the author finding faults with the technical parameters of
> this rally there are thousand other analysts who will look at the
> same data and argue otherwise. At the end of the day the markets
> rule and investors are wise to follow the trend till the bend at
> the end.
www.wealthalchemist.co.../
Looks like bear is coming on the way in May
stockcharts.com/h-sc/ui?s=$SPX&p=D&st=2...
Every pull back is an invitation for more longs on the side lines to pile in
THIS short is doing nothing of the kind. I always leave myself oodles of margin. If the market zigzags up another 1,000 pts (on the DJI), and takes a couple of months doing it, I'll be just Fine.
Chleoku
I suspect a fake out first, drop below 7500, then a sharp final run-up to a new post March high, in June or July.
More trading opportunities, more chance to load up for the Big Bear.
If only I could be sure my brokerages would survive, it would be a once in a lifetime chance for long-term shorting.
> Sideways market since April 9th? You lost me there -- you must have
> been talking about April 9th of some other year. April 2009 was the
> second best month in stock market history.
April 9th close was 8,083 and April 30th close was 8,168.
That looks pretty flat to me, a 1% gain to be exact.
On May 03 07:11 PM Maximus wrote:
> Your comment about XL Capital is correct. But your overall your comment
> begs the question posed by the author that the market is rigged,
> and that it is up on low volume. If your long, have tight stops losses
> in place. Based on the comment stream, TBT seems like the place to
> be.
>
> I also find it out of place to insult a very intelligent author by
> calling him a "basket case" simply because his point of view diverges
> from your own.
>
> Did you even know what the stock market was when you were 19?
> On May 02 02:32 AM InvestBaboo wrote:
The FED should not be allowed to buy/trade equities.
And banks (GS in particular) should be limited in their ability to buy/trade equities.
These 3 are too large to allow a fair value to be set.
Or are they already trading illegally but there is no one with balls to stop it?
What i get the sense of was November ws the real financial panic. The chances of utter meltdown have abated. But then the real economy effects of the Sept-Nov. meltdown became manifest, leading to a retest and break of the fall bottom in March. Now the ecomomy seems like it won't collapse either, and even absent stellar growth, it was oversold. We are just getting back to the "normal" recession prices from the uh-oh, maybe deprerssion prices.
And now you have all the voices of "unsustainable" plunge protection, goldman is gaming the market voices. Voices of those who want to buy in, but at cheaper prices.
Which is why the rally gets into overbought territory.
And then we'll pull back, the "told ya so" disaster voices will come back in...lather rinse repeat.
'Twas ever thus.
Personally, i am not doing much but holding onto stocks bought at what i felt were decent prices, collecting dividends, or watching the businesses grow even in this climate.
Silver - up 4.2% at the moment
Dow - up 2.28 % at the moment
Summarize it with "Rallies without real value creation always retreat."
I can't call the top. Good luck on those that want to try.
So... I love all the talk. It's entertaining...particu... the calls I've seen lately saying "Buy and Hold is Dead!!!". I'll be content to sit back and follow the old philosophies of Diversification, Dollar-Cost Averaging, and regular portfolio rebalancing. It ain't glamourous. It doesn't make for an interesting article. But down the road, I'm guessing this approach will beat 95% of the investors who think they somehow know more about the market then everyone else. The road to bankruptcy is paved with the bodies of those who think they are going to beat the odds and the market. I don't plan on being one of them.
What I am personally getting bored of reading is how the market is having this recovery based on light volume.
The S&P 500 has been trading in volumes of around 1.4 billion to 2 billion shares per day during this rally, on average. What was the average volume during the big bull run in 2007? About a billion to a billion and a half shares per day.
What was the average volume during the big downturn in 2008? Again, about a billion to a billion and a half shares per day, on average