This Rally Is 'Headline Trading', Lacks Conviction

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 |  Includes: QQQ, SPY
by: Herb Greenberg

On May 17 I wrote a column on MarketWatch about how I put a small part of my IRA into the Leuthhold Grizzly Short Fund, which attempts to be 100% short no matter what the market may be doing.

I viewed it as a hedge against the other stock funds I owned, and it has worked beautifully and has even made me look smart for a few minutes here and there.

For those wonder: Despite the giddiness on the floor of the NYSE, as broadcast by my pals (and part-time employer, CNBC), I added to my Grizzly fund today – or at least put in an order that will be filled tomorrow. This market has moved too far too fast at the end of the quarter. Its “near-high” rise has become a media event, while the Nasdaq is still less than half of where it was at its highs.

But the very reasons the market is cheering, lower oil prices and a halt to higher interest rates, can change on a dime in this skittish environment with some international “event” or one unexpectedly bearish economic report.

I will repeat what I have said: There is little in the way of conviction out there but lots of “headline” trading on speculation that second half earnings will be blowout, I tell ya, blowout! Of course, if the economy is slowing, which the latest batch of rear-view mirror-watching reports suggests, the result should be lower earnings.

But why spoil the party? Haven't interest rates stopped going higher -- and isn't there a chance they could slip a notch? Sure -- for now. Won't really help anybody who got a two-year adjustable rate interest-only mortgage two years ago and is facing a re-adjustment on a house whose value in all likelihood isn’t what it was in the heyday.

Am I ignoring oil going lower? Hardly -- $10 less at the pump on a fill-up is a big deal. Another night out at the movies.

But it’s teeter-tottering with food and other items that are still higher. As MarketWatch Chief Economist Irwin Kellner pointed out so well yesterday, just because oil is down, doesn’t mean inflation is. “There’s a little matter of rising food prices that needs to be reckoned with,” he notes. “And you know, food is every bit as important as energy.”

Even with oil prices rising, he says, high oil prices over the past year have impacted everything from fertilizer to the cost of running farm machinery.”

The flipside, of course, is that if manufacturers and retailers aren’t likely to roll back the high oil-related pass-alongs they were so quick to create. Might just help... for now!